Polaris Inc

NYSE:PII

Earnings Call Transcript 2022-Q4

[Operator]

Good day, and welcome to the Polaris Fourth Quarter and Fiscal Year 2022 Earnings Call and Webcast. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to J.C. Weigelt, Vice President, Investor Relations. Please go ahead.

[J.C. Weigelt, VP, IR]

Thank you, Betsy, and good morning or afternoon, everyone. I'm J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2022 fourth quarter and full year earnings call.

We will reference a slide presentation today, which is accessible on our website at ir.polaris.com. Joining me on the call today are Mike Speetzen, our Chief Executive Officer; and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the quarter and year as well as our initial expectations for 2023. Then we'll take your questions.

During the call, we will be discussing various topics, which should be considered forward-looking for the purpose of the Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements.

You can refer to our 2021 10-K for additional details regarding risks and uncertainties. All references to fourth quarter and full year 2022 actual results and 2023 guidance are for our continuing operations and are reported on an adjusted non-GAAP basis, unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments.

Now I will turn the call over to Mike Speetzen. Go ahead, Mike.

[Michael Speetzen, CEO & Director]

Thanks, J.C. Good morning, everyone, and thank you for joining us today. We delivered another record year for both sales and earnings from continuing operations despite a difficult supply chain environment and lower retail versus our original expectations.

We also improved our cash position in 2022 and executed over $500 million of share repurchases. I want to thank the entire Polaris team through your relentless effort in a challenging environment, we delivered record results once again proving this is the best team in powersports.

During the year, we made progress on our 5-year strategy with a renewed focus on powersports. And while we intentionally delayed several product launches in 2022 as the team focused on navigating the supply chain challenges and delivering orders to dealers and customers, we didn't stop investing in innovation. With more than $365 million invested in R&D in 2022, we continue to make our mark on the industry within the wide open side-by-side category with RZR Pro R and Turbo R.

And through the introduction of the industry's first connected technology with RIDE COMMAND+. With a focus on extending our industry leadership, we divested TAP and redirected our resources, time and focus on our core powersports customer. A decision that has had a positive impact on our EBITDA margin and returns.

While innovation is the foundation of everything we do, our #1 priority will always be the safety of our riders. We are making investments in product safety while standing behind our vehicles and acting if needed.

This past year saw an increase in warranty expense and recalls driven largely by legacy designs or supplier issues.

Our investments in safety and quality over the years have supported what I believe to be one of the broadest post-market surveillance programs in the industry, which is enabling us to aggressively monitor for and identify issues. We recognize these recalls are frustrating for dealers and customers, but we are committed to correcting these identified issues.

This approach to monitoring our products even after they leave our factory floors, combined with our ongoing investments in engineering testing, supplier quality and manufacturing processes, bolsters our focus on providing our customers with safe, high-quality vehicles.

Last point I'll make is that we benchmarked our recalls per 1,000 vehicles produced from 2016 through 2022 against automotive, On-Road motorcycles and powersports.

Polaris was in the top quartile in terms of the fewest number of vehicles impacted per 1,000 produced. We have and will continue to invest in and drive improved quality for safety of our riders. As we look at the fourth quarter specifically, sales grew 21% to $2.4 billion.

Excluding marine, North American retail was down approximately 6% year-over-year with modest growth in Off-Road utility and Indian Motorcycle, offset by a slowing Off-Road recreational market.

These trends are similar to what we saw in the third quarter and are expected to continue into 2023. While fourth quarter market share was down approximately 1.5 points year-over-year, it was our best market share performing quarter of the year, and we saw 2 consecutive quarters of sequential share growth in On-Road and ORV. Pontoon retail declined overall with share loss concentrated in the low end of the market, and we gained share in the high end of the market.

Both adjusted gross profit and EBITDA margins expanded nicely to drive year-over-year adjusted EPS. EPS growth of 57%, despite increased headwinds from warranty costs, interest expense and foreign exchange. I'm proud of our record performance, especially considering the environment and the unanticipated headwinds that the team worked relentlessly to overcome.

Now let me talk about the demand environment. The demand story remains mixed. Polaris ORV Q4 retail was down 4% year-over-year and down 1% sequentially, mainly driven by softness in the REC space. Our ATV and RANGER products were up low to mid-single digits sequentially and year-over-year. Remember, the utility space represents approximately 60% of our Off-Road business, including sales to commercial customers, which do not factor into our retail metrics. We continue to see and expect stable demand here as these customers use their vehicles for work applications on a ranch, farm, job site or multi care homes.

I'd also add that weaker recreation of retail in Q4 was partially driven by many RZRs being on a recall-related stop sale in December. As anticipated, the backlog of free sales declined in the quarter as shipments improved. We continue to see sales growth in our premium models such as RZR Pro R, Turbo R and RANGER Northstar as they remain favorites with customers due to their competitive features and capabilities.

A few other points on demand include PG&A attachment rates are at or near record levels, indicating that customers are upgrading their vehicles with higher-margin accessories. We continue to see a steady mix of customers new to Polaris which is consistent with historical trends, while both short and long-term repurchase rates remain elevated or within the historic range.

Interestingly, 5-year repurchase rates were at all-time highs and we're seeing these customers return and upgrade their vehicles to RZR Pro R, RANGER Northstar and even vehicles with RIDE COMMAND+. And on financing, the metrics we're seeing continue to point to a consumer in a healthy financial position.

FICO scores and improved and approval rates are consistent with last year. Also, credit availability has not meaningfully changed. There continues to be strong consumer interest in the space, measured by online activity versus pre-pandemic metrics with Off-Road organic online searches, up approximately 30% versus 2019.

Indian Motorcycles also saw strong web traffic leading to a record number of leads. So by segment, let me wrap up our thoughts on demand. In Off-Road, there remains a delineation between utility and recreation. Demand indicators are stable in utility, while recreation is soft with more pronounced moderation as you move through models with less content. We expect these trends to continue for the foreseeable future.

In On-Road, we had a strong Q4 with the second quarter in a row of market share gains for India motorcycle. With a strong product line up for 2023, we are optimistic that On-Road can continue seeing share gains in retail growth. The marine demand at premium levels continues to be healthy. Inventory is the healthiest it has been in a long time. So we're seeing customers shop around a bit longer. Boat Show season has kicked off and thus far, dealers are optimistic as we enter their busiest season the year.

Turning to North American dealer inventory. We continue to move closer to a more normal operating environment with seasonality even more present within our business versus recent history. For ORV specifically, we look at data from 2016 through 2019 to get a sense of the average seasonality with North American dealer inventory and retail before the disruption that occurred over the past couple of years.

The data shows we typically see our highest dealer inventory levels and lowest retail levels in Q1, which makes sense as customers typically come in looking for units before the spring and summer writing season. We think this is an important context to know as we enter a more normal seasonal operating environment and to better understand the inventory build ahead of the heavier retail season in the summer.

As for the current dealer inventory, we continue to make progress towards our new optimal level. In fact, most of our products are close to these optimal levels, except for our RANGER side-by-side portfolio especially the high-end Northstar additions, where we continue to see strong demand. Total company dealer inventory was up 116% from 2021 to 2022, but remains well below 2019 levels. We currently see the value of refilling dealer inventory at approximately $150 million, which is below the $400 million we discussed on the October call due to progress we made with its shipments in the fourth quarter.

We expect to reach this optimal level in inventory sometime in the first half of 2023. So today, given a return to more normal operating environment and traditional seasonality, our operations are focused on building inventory into the channel where needed to ensure a strong retail season allowing dealers to sell products and not worry about availability.

In summary, our say-do ratio in 2022 was high, with revenue coming in at the high end of our guidance and EPS exceeding guidance by $0.10 despite headwinds and in the supply chain and increased pressure from interest rates and foreign exchange. I'll now turn it over to Bob, who will summarize our fourth quarter and full year performance as well as 2023 guidance and expectations. Bob?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Thanks, Mike, and good morning or afternoon to everyone on the call today. Q4 was another record quarter for us with contributions from volume, price and a mix up to higher priced vehicles. International sales grew 7% year-over-year, overcoming a 9 percentage point drag from currency. Adjusted EBITDA margin expanded 272 basis points, overcoming increased warranty, marketing and G&A expenses. Below operating profit, interest expense continued to tick up given higher rates.

In Q4, we executed $400 million in 3-year floating to fixed swaps at an all-in rate of approximately 5%, starting in February 2023. This will allow us to maintain our fixed to floating debt ratio near our 50-50 target for 2023. Additionally, we were opportunistic share buybacks, repurchasing 1.2 million shares in the quarter. Adjusted EPS from continuing operations was $3.46, up 57%, marking a new quarterly record for Polaris.

For the full year, I want to call out a few things. First, we did what we said we would do and grew both sales and EPS by 15%. Price and favorable mix to higher content vehicles helped drive these results. We were also opportunistic with share repurchases by repurchasing over $500 million in shares.

The year was not without its challenges, and I am incredibly proud of our team who delivered these results despite ongoing supply chain challenges, rising inflation and additional warranty costs.

Turning to our segment results for Q4. Let's start with Off-Road. Sales rose 19% relative to last year to $1.9 billion. Whole goods increased 22% and PG&A was up 8%. Adjusted gross profit margins were up an impressive 503 basis points. Similar to Q3, sales growth and margin expansion were driven by price and mix, which more than offset higher warranty expenses commodity costs.

Looking at retail performance, ORV was down about 4% in North America with declines in recreation, somewhat offset by growth in utility. Within Utility, there is better performance in RANGER versus ATVs. We believe the industry was down low single digits, thus pointing to modest share loss in the quarter.

Some of our share loss was due to holds on recall products, and we would expect to gain back that share as we work through the recall and the sales hold lifts which should occur in the first quarter. Sequentially, we were able to gain share with higher shipments and healthier dealer inventory. Q4 also marked our highest quarterly ORV share performance in 2022.

We continue to see positive trends in our utility segment as well as robust double-digit growth in our commercial, government and defense business. Snow was negatively impacted by rework associated with 2 recalls where fixes have now been communicated to dealers. With healthier inventory across our Off-Road portfolio as well as new innovations, we look to gain market share in 2023.

Switching to On-Road now. Sales of $302 million were up 29% versus last year, with whole goods up 35%, while PG&A was flat. Remember that our On-Road segment includes the Aixam and Goupil businesses in France, along with our most global business, Indian motorcycles, thus, you see a strong mix of international revenue, which saw meaningful pressure from FX.

On-Road shipments in the quarter were the second highest of all year as we are settling into a more normal supply chain environment. This helped Indian motorcycle gain share for the second quarter in a row. Gross profit margin was up 358 basis points to 17.1% as the team continues to execute well on its path to profitability. Driving this expansion in the quarter was volume and mix towards heavyweight motorcycles and price.

Moving to our Marine segment. Sales of $245 million were up 36%, driven by price and mix. Inventory is the healthiest it has been all year across all 3 brands. We still have some work to do in entry and high-end models but a healthier supply chain has given us a path to quickly make progress as we work hard to set up dealers for a successful boat show season. North American pontoon retail was down low 30s as we continue to prioritize high-end boats. With recent improvements in dealer inventory, we expect to return to a more normal mix of entry, mid and high-end boats in 2023, which should lead to share gains.

Gross profit margin was up 209 basis points based on mix and price, along with improving supply chain stability. Reviewing the full year segment data, actual results were in line with our expectations with a little outperformance in margin from the On-Road Group. The performance last year sets us up for a strong 2023, highlighted by expected share gains and an abundance of new innovative new products and technologies being launched.

Moving to our financial position. We continue to benefit from a healthy balance sheet with our leverage ratio at 1.6% -- 1.6x and a strong cash position. Free cash flow was up over 800% year-over-year all of the growth coming in the second half of the year. The cash momentum is expected to continue with further growth anticipated in 2023.

As a dividend aristocrat, we concluded our 27th straight year of increasing our dividend. We executed on our commitment to investing in our simplified portfolio with over $300 million spent on CapEx and 4% of sales spent on R&D in 2022. We believe we are set up well for a variety of scenarios in the broader market with our balance sheet and cash generation capabilities in 2023.

Now let us talk about our initial guidance for 2023. We expect sales to be flat to up 5% relative to 2022. Drivers for performance include the following in order of expected impact, favorable mix from new products, higher content vehicles and more PG&A. It is important to note that the majority of our new products are expected to launch in the second half of the year and be priced above like products currently in our portfolio.

Second is volume. We expect retail to modestly outperform the industry in Off-Road. Our commercial business is also expected to have a strong year, but those units do not count towards our retail share performance. On-Road is expected to have a strong year with a very competitive lineup of bikes.

We believe Marine will be in a stronger competitive position with healthy inventory across its entire lineup as well as some new boats across all 3 brands.

Price is expected to offset increased promotions with price being a stronger contributor in the first half of the year due to the carryover from 2022. We view FX and finance interest as headwinds and to sales growth in the magnitude of over 160 basis points. These expectations contemplate flattish industry retail for the year. Therefore, any deviation in the industry could positively or negatively impact results.

Another swing factor could be the timing of new products, which are expected to launch in the second half of the year. By segment, we expect Off-Road sales to be up low to mid-single digits and On-Road sales to grow low single digits, driven by retail and share gains. With new products and healthier dealer inventory, Marine is expected to be relatively flat to last year, with share gains from new products and healthier dealer inventory, offset somewhat by a weaker industry.

For margins, we expect modest margin expansion at the adjusted gross profit and EBITDA line. Drivers include volume and mix, along with reduced cost premiums associated with inflation and a healthier supply chain. Some headwinds to acknowledge include increased financing interest and FX. We are currently forecasting an FX headwind of approximately 60 basis points to EBITDA, mainly due to recent movements in the Canadian dollar. We are also carefully watching the euro.

Adjusted EPS from continuing operations is expected to be down 3% to up 3% with most of the drop-through for margin expansion being consumed by higher interest rate expense. In fact, combining the headwind from FX and a higher interest rate expense in 2023, we estimate the impact to be a drag of approximately $1.50 to adjusted EPS, helping offset some of this headwind as a benefit in our share count given the work we did to repurchase shares in 2022.

A few other items to note before I turn it back over to Mike. Operating expenses are expected to tick up as a percentage of sales with the bulk of that being attributed to sales and marketing. This increase is driven by a return to more normal advertising levels and in-person dealer events. We encourage you to model shares flat to Q4, so roughly $58.5 million.

Financial services income is expected to be up 40% with higher interest rates and increased dealer inventory, driving more income from receivables. Operating and free cash flow are expected to be up significantly versus 2022 as investment in working capital is not expected to be a drag.

Lastly, we are planning a meaningful investment in back shop capacity in Mexico to bring outsourced fabrication and injection molding activities back to historical levels. That activity, along with capacity expansion investment at several other facilities is going to drive CapEx higher year-over-year.

Mike will touch on this briefly, but we are excited about the opportunity to invest in growth while also taking more control of our supply chain. Our capital deployment priorities in 2023 are as follows: we intend to continue to invest in the business, and our intention is to have our 28th straight year of increasing our dividend. After that, we look at balancing share repurchases and debt pay down with likely a bit of both this year. At a minimum, we look to offset dilution from our stock-based compensation program.

If you recall, part of our 5-year strategy is to reduce our base share count by at least 10%. And with the repurchase activity concluded last year, I can say we are ahead of our initial plans. Therefore, we expect to be opportunistic with share repurchases while also balancing debt pay down and making these decisions based off what we think is the best for the company given return metrics and what we deem as a healthy financial position.

Lastly, as we think about the first quarter, there are some moving parts worth mentioning. We do expect retail ex Marine to be flat to modestly up year-over-year. Remember, promotions are netted out of revenue, and with those increasing, there will be a headwind to both revenue and gross profit margin. And then we expect year-over-year pressure from foreign exchange and interest expense. Some items working in our favor are price and an expected reduction in cost premiums.

On EPS, we have looked back at pre-pandemic years regarding the cadence of earnings, and we expect 2023 to have a more normal cadence of earnings with 16% to 17% of our full year EPS being realized in the first quarter when we typically see a seasonally soft retail quarter. Overall, we believe we are set up for a strong year, including share gains across our segments, margin expansion and strong cash generation. Although headwinds exist, our team is focused on delivering these results as we continue to march towards our 5-year targets.

With that, I will now turn it back to Mike for some additional thoughts on 2023.

[Michael Speetzen, CEO & Director]

Thanks, Bob. We made a lot of progress on our long-term strategy in 2022 and are well aligned on what needs to get done this year to meet our 5-year goals. Starting with the strategy we laid out at Investor Day last February, nothing has changed. This team is focused on executing the strategy. We consistently review progress to our strategic objectives as a team as well as with our Board. We believe the 6 pillars of our strategy will drive growth, improve margins and drive strong financial returns for investors.

Rider driven innovation and best customer experience will be on full display in 2023 and as we have a very exciting year for new product introductions across all segments. Consistent with the success we saw in 2022 with the RZR Pro R and Turbo R, I think you will be impressed with our Off-Road launches in 2023. Polaris Off Road will not only raise the bar for our industry, but will redefine product categories. Both dealers and customers should be excited to see and experience what's to come.

Indian motorcycle has much -- had much to be proud of in 2022 with the launch of the new FTR Sport and Indian Challenger Elite. And 2023 is set up to be an even better year with new bikes and accessories consistent with the innovation riders have come to expect from America's first motorcycle company.

And our Marine business is gearing up to ship new products across all 3 brands from Godfrey Mighty G to the Hurricane Sundeck 2600 and plus more to be announced in 2023. Boat show season is upon us, and I saw firsthand the level of excitement and energy around these already released products. Our strategy isn't just about innovation.

Last year, we invested significant money back into the company to ensure we have agile and efficient operations as well as capacity to support the innovation. In 2022, we expanded our PG&A distribution center in Ohio -- added capacity at our Monterrey, Mexico facility to support new Off-Road products coming out in 2023, and added capacity in Elkhart, Indiana for our marine business to support the growth in our large boat cat segment. As we look forward, we see a need for additional capacity in our Off-Road business to support planned growth. Starting in 2023, we're investing in vertical integration as well as capacity expansion in a new location in Monterrey, Mexico. The investments in construction are scheduled to start this year with the benefits being realized in early 2024, certainly an important step to support our 5-year strategy and align with our agile and efficient operations pillar.

Lastly, we're well on our way and on trajectory to achieve our 5-year financial objectives. 2022 saw us drive growth, expand margins, improve returns and execute on our capital deployment plans. While 2023 is bound to have some challenges, I expect another solid year of progress against our objectives.

Let me wrap up. We did what we said we would do in 2022. We expect demand signals to be mixed in 2023 as they have been for the past couple of quarters. We're closely watching a number of demand indicators and our plan is to remain agile in managing our manufacturing and shipment plans so that we can swiftly respond to positive or negative trends. We expect overall powersports retail to be relatively flat this year, plus or minus a point or 2 as we settle into a more normal operating environment.

For Polaris, it's expected to be an exciting year for product launches and new services as we accelerate rider-driven innovation and the best customer experience. There are meaningful headwinds to our financial results given recent foreign exchange moves and higher interest rates. We have done our best to help you model them given the information we know today, but realize both of these have been volatile as of late.

This environment requires us to remain agile to changing conditions, and we are well poised to do just that. As I have said before and it remains true today, we know that winning in a competitive environment requires our entire organization to be focused on delivering.

With the best team in power sports, I'm confident we will deliver on our commitment of being the global leader in powersports. We're excited for 2023 and what it offers us, our dealers, our customers and our shareholders. We believe the decisions and investments we are making today will not only set Polaris up to deliver a strong year, but also generate strong growth and returns over the long term.

With that, I'll turn it over to Betsy to open the line up for questions.

[Operator]

[Operator Instructions]. The first question today comes from Craig Kennison with Baird.

[Craig Kennison, Robert W. Baird & Co.]

I wanted to ask about the flattish retail forecast that is embedded in your guidance. To me, that suggests you hold or maybe gain a little share in an economy that does not enter a recession. I'm just curious if you considered scenarios with a deeper economic downturn or pressure on your market share and what those downside scenarios might look like?

[Michael Speetzen, CEO & Director]

Okay. Thanks, Craig, and I appreciate the question. Yes, we've modeled a number of different scenarios and the result on operations. I think the element to keep in mind is it's not predicated on a substantially better economy. If you think about the areas where we lost share in 2022 is predominantly concentrated around the RANGER product line, the utility space.

And when we look at the inventory levels for that business, they are still well below even the optimal levels, and those optimal levels are well below where we were in 2019.

And given that we see that market holding up, it's an opportunity for us as delivery improves to get back in and pull that share back. And we essentially have seen that playing out over the last 2 quarters. So we know when we've got the availability that we're going to pull the share back. And we're happy with the performance we had in REC last year, the Pro R, Turbo R put us in a share gain position, which is great given some of the challenges we've had over the past.

And really, it came down to availability within our RANGER product line. And we've seen that steadily improving, and we anticipate that will continue through 2023. So being able to get caught up on both the dealer inventory as well as just the continued solid demand that we have in that category is important.

The other element is we do have new products coming out that serve new segments. And I think that's really important to think through because there will be a little bit of cannibalization that comes from these products, but we do think that they're going to appeal to a different subset of the industry, and we think that's going to put us into a really good spot.

The last thing I would point to is, we've managed this business through some pretty volatile and uncertain environments just in the past several years. And the team has got a really strong track record of being able to react and move the business in the right direction. And we know what our guideposts are relative to dealer inventory. We're going to let that plus the demand data that's coming in from the dealers really be a guidepost for us.

The other point I'd make is dealer inventory obviously was up strong versus last year, '22 versus '21. But the thing to consider and similar to the dynamic we saw in the third quarter, a lot of that inventory went into the channel very late in the quarter.

We were still dealing with some manufacturing disruption from suppliers as well as even some of the recalls and when you think about that dealer inventory number one, a lot of that is clearing out in January as we were able to get into the hands of dealers and they're getting through the setup and delivering the customer demand. But also, we're clearing recall holds over the course of January and February.

And we know that those vehicles are in demand because we've had consumers at least put initial deposits on them that has shown up in the presold numbers. So we're watching January closely right now, retail is outpacing anything we would be shipping into the channel. So we feel good about the dealer inventory levels.

[Operator]

The next question comes from Fred Wightman with Wolfe Research.

[Frederick Wightman, Wolfe Research]

I just wanted to -- if we think about the retail commentary you just gave and then look at the actual reported sales guidance, what sort of gets you to the low end versus the high end of the sales? Is it just sort of how long or sticky that price and mix benefit is? Or is it retail? What is sort of driving that?

[Michael Speetzen, CEO & Director]

I mean there's going to be an element of it that's the retail. We've factored in the level of promo that we think is appropriate given the industry conditions. And a lot of that promo is really geared around interest rate buy downs -- just knowing that the kind of the low to mid-end of the markets are pretty sensitive to the interest rates. They typically finance. And so we've built that in to allow us. So I don't know that we're necessarily anticipating any substantial price moves.

I think a lot of it's really going to be, as we talked about earlier, we're going to let demand and dealer inventory kind of guide where we ship to the business. And if we see pockets as we look through the scenarios. And frankly, it's why we widened the guidance range relative to what we normally do is to just recognize that there's a fair amount of uncertainty.

And when we talk about flattish retail, as I mentioned in my prepared remarks, we're kind of running scenarios where we're down a couple of points or up a couple of points and using that to help guide where we need to go and then factoring in the fact that we do have new products coming in that serve new segments. And we've got a -- we anticipate strong demand for those, but also making sure that we've got plenty of inventory in the channel for the dealers.

[Frederick Wightman, Wolfe Research]

Makes sense. And then just on that new product introduction, you gave us the earnings cadence 16% to 17% in the first quarter, but also just the timing of these products. It sounds like in the back half of the year, should we be looking to historical cadence for the quarters? Should it be more back half weighted because of these products? How do you sort of want us to think about that?

[Michael Speetzen, CEO & Director]

Yes. So it will be -- I think looking back at historical cadence is the right direction to go. Probably a little bit more to the back half than historic just because of the new products and the timing of those. The other thing I think folks need to keep in mind around growth for next year is the commercial business.

We have a very large business selling rangers to commercial accounts folks like United Rentals, Herc Rentals, things like that. And that business, one doesn't run through the dealers. It's sold direct. It doesn't show up in retail. It doesn't count as ROVA retail.

But it's a business that is really strong right now given the infrastructure bill and the chip fab bill. So those markets are really strong. We do really well in them. And that business is up significantly for 2023 with relatively low risk in terms of it happening, regardless of sort of what happens in the general economy because those projects are funded. So that gives us a little bit more stability and confidence in the growth on RANGER as we go into '23.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

And Fred, the last point I'd make is from a sales standpoint because, again, it doesn't show up in the retail is our PG&A business typically as the market starts to slow, if people aren't buying new vehicles, they certainly are repairing and upgrading their vehicles. So we know that, that PG&A business is going to resilient in offsetting. So I think in the past, we've talked about the retail-driven portion of our revenue is probably in the 40% to 50%. So there's a number of other factors that play out in terms of PG&A, the commercial, the government as well as international growth and revenue performance that are going to influence those numbers just outside of North American retail.

[Operator]

The next question comes from Joe Altobello with Raymond James.

[Joseph Altobello, Raymond James & Associates]

I guess first question on margins. What's the margin drag that you guys are assuming from increased promo activity in '23. Does pricing offset that dollar for dollar? Or is it margin neutral?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

So in -- if you look at '23 versus '22, the pricing -- the carryover pricing from '22 into '23 really carries through the first half, and that will largely offset the increased promo for the year. The other -- but the other piece of that drag is dealer finance with floor plans with dealer inventory being up, floor plan rates being up, the floor plan finance cost for us is a drag. So -- but promo itself is mostly offset by the carryover of the price.

[Michael Speetzen, CEO & Director]

And Joe, just keep in mind that when we talk about the finance promo, the way Bob has got this structure with our financial partners, we end up pulling back some of that income below the line. So some of that GP margin headwind gets offset much lower in the financial statements.

[Joseph Altobello, Raymond James & Associates]

Okay. But -- could you guys quantify the expected headwind? Is it 100 basis points?

[Michael Speetzen, CEO & Director]

No, it's less than that.

[Joseph Altobello, Raymond James & Associates]

Okay. And then, I guess, second, sort of big picture, could you tell us what the industry was down in '22? And maybe why that would get better in a tougher economy in '23?

[Michael Speetzen, CEO & Director]

Well, you have to remember, we're such a large portion of the industry. And when you have a combination of us on a -- especially as we get towards the end of the year, pretty substantial stop sale for our REC business.

And then struggling to get the product out for the utility business, that puts a fair amount of pressure on the industry. And as we look into 2023. And as I mentioned earlier, you get a combination of us getting back on pace with Ranger, knowing that the utility segment, at least for the past couple of quarters, has shown resilient demand and we anticipate that to continue for the factors that we outlined earlier and the new products that are going to come into the market, those are going to be enough, at least from a Polaris perspective to obviously drive retail that, as we said, could be flat to up, and that should create more stability in the industry.

What I'll tell you is, even with that expectation around retail, we're still down below where we were in 2019, both Polaris as well as the industry. So it's -- I would characterize it more as a stabilization coming off of 2020 when we saw outsized demand and then really continued challenges in '21 and '22 as an industry, we were struggling.

And obviously, we were disproportionately impacted by the supply chain challenges, and we see that stabilizing as we get into to 2023. And even with a choppy macro, we think the opportunity is specific to Polaris relative to the utility segment, RANGER inventory levels as well as the new products coming on seen that gives us the opportunity for some growth.

[Operator]

The next question comes from Robin Farley with UBS.

[Robin Farley, UBS]

A couple of little clarifications. You mentioned retail in January, you said sort of outpacing what you're shipping. Can you kind of put that into roughly like a retail year-over-year, how January is pacing so far?

[Michael Speetzen, CEO & Director]

No, I don't know that, that would provide a whole lot. But I think the point is similar to what we experienced, if you remember the call back in October, we talked about the fact that dealer inventory had moved quite a bit coming off the third quarter. But we were watching, specifically at that time, it was RANGER and ATV retail sales, and they were 2x overstripping what was sitting in the channel as well as what we were able to ship in.

And so similar to that dynamic, maybe a little bit different in the fact that we did have late shipments given some of the challenges we had on the utility side specific to RANGER . But coupling that with the recall holds that we had on our RZR business, given some of the fuel system supplier-driven quality issues that we're working to have resolved here in January and February. That puts us in a position that retail is going to outstrip, which just means that dealer inventory is going to come down a bit and calibrating what we saw at the end of 2022.

[Robin Farley, UBS]

Okay. And can you quantify roughly what percent of retail in Q4 was presold? I think you've been giving out that number in prior quarters. So just wondering where that ended for Q4.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Yes. I'm not going to give a specific number, Robin, but it's kind of been down quarter-over-quarter. We did see strong presold, though. And some of that happens because of a model year change too. As the model year change comes in, people stop preordering because they want to wait and get the new model.

And for a period of time, we don't take preorders on new model years. So that dynamic ends up in Q4. But while it was down, we are seeing strong -- which we would have expected as dealer inventory refills.

So it's not like people aren't buying, it's just that they're -- they can buy at the dealer. But on the products that are in high demand and some of the products that were on hold with the recalls, we had seen strong presold as consumers get in line to get those products. So it's still well above where it would have been historically. It's just not in the levels it was during the pandemic.

[Michael Speetzen, CEO & Director]

Yes. And Robin, one of the dynamics we watched it play out in India. As we got more stock on the floor. We would see cancellations in the presold, but all of those were moving to folks buying bikes off the floor rather than waiting for a bike to show up in a month or 2. And we've essentially seen that dynamic playing out. And as Bob indicated, now it's becoming a little bit better indicator around the demand where we don't have dealer inventory levels at the adequate level or we have product that's on hold and we've seen that playing out specifically around the high-end RZR as well as RANGER products right now.

[Robin Farley, UBS]

Okay. Great. No, that makes sense. Just 1 quick final clarification, if I could. In your market share numbers, I guess dealers have been talking about some OEMs imports from China growing share. And I think initially, those were not in sort of the included in the market share data that you gave. Are those other brands now in your market share numbers or not yet. It's still kind of just a legacy competitor brands?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

No. I mean when we give market share data, Robin, we can only really give it for the folks that participate in ROVA and some of the Chinese manufacturers don't participate in the trade organization. So we don't get their reported data. But the other thing to keep in mind is that as you look at some of these -- the Chinese entrants, we certainly -- we don't dismiss any competitor ever. But the bulk of the products they have been selling, especially during the pandemic has been lower end products in a range that we don't participate in, in a meaningful way. So to some degree, it's probably grown the market more than it's changed the share dynamics.

[Michael Speetzen, CEO & Director]

Yes. And Robin, I mean, I'll reiterate what Bob said, we will not be dismissive of a competitor. But we do know -- I mean we spend a lot of time out meeting with dealers, Bob, Steven, Edo and I and -- the consistent dialogue from the dealers is the majority of the folks buying those are not necessarily customers for businesses like ours or higher-end competitors.

And we've also seen that the dynamic has changed quite a bit. The issue was when none of us had availability and they were able to get product in, they were able to move it. Now they're at a point where they're at a surplus and the dealers are really pushing back hard on how much inventory is being pushed in the channel.

So it's kind of -- it's come back in to parity. And I think as the availability of our products as well as the rest of what I'll call the legacy higher-end industry improves, I think you'll see that dynamic at least coming back in a parity. That said, we're taking a hard look at it to understand how we -- how -- if we and how we potentially compete against that particular end of the market, and obviously, don't want to necessarily take Polaris down into a super cheap value play, but we're going to continue to look at that and monitor it and react accordingly.

[Operator]

The next question comes from David MacGregor with Longbow Research.

[David MacGregor, Longbow Research]

Just a question on PG&A. You noted attachment rates are healthy. with reduced dealer whole goods inventory targets in 2023, does that extend the PG&A or do you lean more aggressively into attachment sales with higher dealer in stocks?

[Michael Speetzen, CEO & Director]

Certainly, there -- they operate PG&A on an RFM model, similar to we do whole goods. So obviously, that will tamp down any of the, call it, in-store traffic. But -- that said, if you're seeing fewer whole goods move, typically, people are buying oil kits, maintaining the vehicles because we know people are still writing the same rates that they have historically as well as if they're going to hold on to a vehicle for another year or 2, they're likely to buy some accessories. And so there'll be some of that.

The attachment, the factory install, we call it, in terms of shipping a whole good with the accessories on it, we've seen that steadily increasing. And so I anticipate that, that will continue. And even with a more muted whole good growth rate, you're still going to see PG&A attachment rates inching up. probably not at the same leaps and bounds that it had over the last 5 years.

But there's still a lot of accessories. We've got new products that are coming out this year, and there's more accessories available on those products than we've ever had historically on a new product launch. So the team's really gotten to a good cadence recognizing that it's a great way for the customer to be able to customize the vehicle, but it's also a great margin opportunity for both Polaris and the dealer.

[David MacGregor, Longbow Research]

Got it. Got it. And then second question on motorcycles. This is a category where, I guess, you've had some margin challenges over the years, but you made a lot of progress in 2022 on motorcycle gross margins. So just talk about the drivers of the margin improvement other than the mix, which you referenced in your prepared remarks, but the games seem to be holding well here. So how should we think about the potential upside from here? And what have we assumed in your 2023 guidance with sales up low single digits on raw material cost relief?

[Michael Speetzen, CEO & Director]

Yes. I mean we've talked a lot about the fact that the team is driving a path to profitability plan. And we're really happy with what we've seen, the adherence to it without compromising the quality and the innovation. I mean there's a lot of different factors. I mean, one is the scale of the business, as you grow it, you're obviously leveraging your overhead. So there's a lot to be said there.

I would talk about things like the price and promo environment stabilizing. One of our largest competitors was doing some pretty challenging things a few years back. And with new leadership that has certainly stabilized and created an environment where I think we're able to ensure that we get full pricing on our vehicles plus we were dealing with an environment where scarcity was also driving a bit of a premium.

On top of that, we're leveraging into our engineering spend. We had to essentially build up bikes from scratch, all categories. And with the introduction of the chief this past year, that really filled out the platforms that we needed as a company. And so as we move forward, we'll still be spending good money on engineering, just not at the levels that we did when we were effectively creating a new business.

PG&A has been a huge focus for us is an opportunity. If you look at us relative to some of our competitors, we're still below where we should be. But I'm really happy with the progress the team has made over the past couple of years to drive that performance. And then international has become a huge growth catalyst for us.

About 40% of our revenue growth for Indian is coming out of markets outside of the U.S. And so that gives you a really good opportunity into those markets. You're able to hold price and really get paid the premium that the bikes deserve. So happy with what we've seen. The teams are working pretty much every opportunity they have and we expect that trajectory to continue.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Yes. The only thing I would add is we've also continued to pursue localization in that business. It is Unfortunately, they're most impacted by FX given how global it is, but we've continued to increase the level of bikes. We assemble in . And as you know, we started to assembly in Vietnam earlier this year, so -- or earlier in '22. So that starts to benefit as we move forward, and we'll continue those efforts to make sure we're producing the Indian motorcycles where they're being sold.

[Operator]

The next question comes from Jaime Katz with Morningstar.

[Jaime Katz, Morningstar]

I'm hoping you guys can elaborate a little bit more on Marine, mostly the trajectory of the improvement you're hoping to achieve. I'm wondering if mostly a remedy that stems from correcting the correction of the supply chain. So it's sort of a smooth improvement going forward. versus the recent declines at retail? And then is there any way to think about what the impact of the switch coming on to the market might have had on the lower price point end of the market or demand, sorry?

[Michael Speetzen, CEO & Director]

Yes. So I'll take the last first. We know that it's had an impact. I mean when you come on with a new product, it certainly does. When we look at the Pontoon market, the true Pontoon market, which in theory, the switch doesn't necessarily qualify just given some of the stimulations the legacy brands held up quite well.

And so we're obviously tracking their performance, and we spent time talking to some potential customers at the Minneapolis Boat Show and I think for the most part, we feel like it's not necessarily pulling pontoon customers away. It's probably pulling PWC customers up into a larger version of the product. But we're going to continue to keep an eye on that.

When we look at the improvement that we're expecting in Marine, I guess I'd characterize it, it's a tale of 2 sets of businesses. One is -- when we look at Godfrey and Hurricane, there's been a lot of work over the past several years to turn those businesses around. And the boats are absolutely gorgeous.

They've done a spectacular job of improving profitability I mentioned it in my prepared remarks, everything from the Mighty G, which we're seeing tremendous pickup on the electric version of that boat, that's tapping into a whole new segment, both electric as well as consumers who are looking for a smaller, more maneuverable Pontoon all the way up to the Hurricane 2600, which is an absolutely stunning fiberglass boat. Those are obviously going to drive significant market share performance. We saw market share gains in both those businesses in 2022, and we expect that to continue.

Where we really struggled was Bennington with Ben moving into the leadership role of the entire Marine segment. he's really going to bring a lot of that same philosophy and approach to Bennington that was brought to pull Hurricane and Godfrey back up to market share gains. And we're pretty confident given what we've seen in terms of product plans, go-to-market strategies that will put Bennington back in a really positive spot from a market share perspective.

Part of the challenge we had this past year was just being able to get boats into the channel. We added capacity -- there's some automation moves that are being put in place, and that should improve our ability to deliver and put us back in a share gain position for that brand.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Yes. I think the thing people maybe miss on the boat business, when we bought it in 2018, Bennington, obviously, the crown jewel and continues to be.

But Bennington is also the bulk of the earnings and Godfrey Hurricane really in addition to kind of having dated boats, had what I would call dated financials. And so they weren't really big contributors to marine profitability. And now we have months in '22 where Godfrey and Hurricane made more money in a month than they made bought them in 2018.

So Ben and the team have done a great job driving profitability improvements, along with quality and design improvements in those businesses. And as Mike said, now Ben is bringing that -- some of that same focus, particularly on the design side over to Bennington and we'll see good results there as well. But marine profitability has improved quite a bit since we acquired the business, and we've got more activities underway to continue to drive that. So it's been a really good story.

[Jaime Katz, Morningstar]

Okay. And then can I just clarify, I think you guys had said in the prepared remarks that you were going to start capitalizing on the expansion in Monterrey in 2024. But should we assume that the sort of elevated CapEx goes beyond 2023 for maybe another year before normalizing to pay for that expansion?

[Michael Speetzen, CEO & Director]

Yes. I mean the reason that we made the statements we've made is that it's obviously a new location. The first wave of this, just given the current backdrop from a broader economic standpoint is really focused around in-sourcing. We're trying to bring some of the activities that we outsourced during the height of the frenzy to be able to get product out.

We're trying to bring some of that back in to bring it back into more parity. It's also a pretty substantial cost play. And that's why we'll be able to start to realize benefits sooner. And then there'll be additional investments as we start building up the capability to produce new whole goods to serve both that market as well as the broader North America market.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Yes. So you should -- the exact timing of the CapEx will depend on when we decide to start the investments as we look at just what the market does over the next year or so. But I think CapEx will be elevated over historic levels. It was in '22.

It will be in '23. I think Mike and I have been really clear with everybody that we feel like the business was under invested in historically, is part of the reason we went back to a more focused portfolio, and we're putting our money into high-return operational investments that either improve quality, improve the product and drive better costs. And you'll see us continue that.

[Operator]

The next question comes from James Hardiman with Citi.

[James Hardiman, Citigroup]

I wanted to dig into the inventory replenishment dynamics, continual conversation we've had the last couple of quarters. What was the full year replacement benefit for 2022? Is it easier to just take the $750 million that you gave us a couple of quarters and subtract the $150 million that you gave us this time around and I guess if so, doesn't that suggest a pretty sizable headwind this year as we lap that even with the $150 million left over.

[Michael Speetzen, CEO & Director]

Yes. I mean I think the basic math has that as part of the equation. I think the more challenging aspect is, yes, $150 million is what's mathematically left after you look at the end of the year. But as I pointed out earlier, we're already clearing through some of that dealer inventory.

So you have to consider the fact that we had a fair number of our RZR on hold coming out of the end of the year and even into January and part of February. And then a lot of RANGER that got delivered in the last week or 2. And as you know, between transportation time and setup time, those things aren't retailing until January even into February. And so it's difficult because it kind of moves around.

I would suggest that $150 million is probably understated because you cleared through in January and February, the recall holds as well as the backlog of consumer deposits for some of the higher-end ranges. But it's in that ballpark. But as we look forward, one, we still have opportunity to refill with Ranger and that demand is holding up.

So that $150 million we said first half, and it's really going to depend on how that demand profile plays out because we're still going to be planning, I expect a catch-up. But we then have in the second half, we have some new products coming on the scene that we feel pretty confident given the redefining of the segments, new areas of opportunity and growth, coupled with all the factors I talked about before outside of just North American retail that drive growth in this business. That's why we're pretty confident that we'll see revenue growth as well as lapping of pricing and some of the other dynamics that we have.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

The other piece of that, too, is with the commercial business, keep in mind that the growth in the commercial business, which will be very strong in '23 and has been -- was in '22 as well. That business doesn't impact dealer inventory because it goes straight from the factory to the customer. And so you won't see that show up in dealer inventory, but it does obviously show in revenue.

[Michael Speetzen, CEO & Director]

And the majority of that business was already sitting in backlog. So there's a high degree of confidence behind that.

[James Hardiman, Citigroup]

Just to clarify, I shouldn't be sort of taking -- it sort of seems like the first half sets up really favorably because you've still got that $150 million that should sort of be an add-on to your sales but then the back half of the year kind of feels like a $600 million headwind you're telling me I shouldn't think about it that way.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

No, I wouldn't. To Mike's point, I think that the timing of refilling the $150 million is going to depend on retail, and it's all really RANGER at this point, so -- or mostly RANGER. So as we continue to have strong shipments in Ranger, we think we'll drive better share, which will make it harder to refill that inventory.

So some of that or much of that could push to the second half some of the chunk of the commercial business is second half diluted again, we feel really good about that. And then we've got all the new product in the second half. So I don't -- I wouldn't view it as that headwind is all in the second half.

[Michael Speetzen, CEO & Director]

Yes. And I think, James, when you're trying to do that math, you also have to consider we had retail declining in Q3, Q4 of last year. And if you assume retail is flattish. That obviously needs to focus into your calculus.

[James Hardiman, Citigroup]

Got it. One more quickie for me. Pricing and mix, it sounds like from your anecdotal commentary that you still think there's a tailwind there. I guess how do we think about wholesale units versus wholesale dollars within the context of your guide? Are you getting a meaningful sort of ASP benefit as you sort of bridge those numbers?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

So there's not -- I mean, we expect pricing to be relatively flat. There's been a fair amount of price taken in the industry over the last few years. So we're not going into the year with expectations of ongoing price increases. So we think that will be relatively flat. A lot of the benefit really comes from mix and what we're seeing, and I think this is really across the industry, the industry really has changed.

The mix has moved much more towards multi-passenger and premium units. And that continued in '22. We expect it to continue in '23. That's where the customer is going. I think you kind of got to look at this a bit like the SUV and truck market where consumers have -- nobody buys a -- really a 2-door truck anymore, right, everybody buys a crew and be buying fully optioned out. And that's the same thing we see across the product lines is that move to premium and multipath,and that drives a lot of the ASP benefit.

[Operator]

The next question comes from Gerrick Johnson with BMO Capital Markets.

[Gerrick Johnson, BMO Capital Markets]

Two questions here. First, just to clarify on what happened in fourth quarter. You expected fourth quarter retail to be positive. So in or down 6%, I guess. I guess where does that come from? Is that all the recall? What else left retail like short of your expectation?

[Michael Speetzen, CEO & Director]

It was really -- it was a combination of the recall holds which were obviously on a substantial number of RZR. And then really, it was the timing around the shipments of the utility vehicles into the channel. We had a couple of specific supplier issues that pushed our shipments much later in the fourth quarter than we would have liked. The good news is those products are moving in January. So customers are not happy about it being late, but at least they're getting their vehicles now.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

And just from a unit standpoint, a little less impact from margins, but same issue with snow. We had a couple of calls in the quarter. And we're very conservative in terms of how we look at shipment side revenue, so we don't recognize revenue. But some of the -- a lot of those units, the dealers can't retail them. We had the fix out. It was pretty simple fix, but the dealers can't retail them until they can prove that fix is done. So that pushed some snow units that would have retailed '22 into early '23.

[Gerrick Johnson, BMO Capital Markets]

Okay. Got it. And a second question here to you, Bob. Maybe give us a bridge to the financial service percent flat retail and more cash buyers, how do we get up 40%?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Yes. So even on flat retail, we're seeing 2 things. As promos, we're seeing continuing higher pen rates because as promo comes back in the market, a lot of our promo is focused on interest rate buy downs. So that makes the percentage of the units that we sell a higher percentage to get financed by our partners, which helps drive that income. And then the other piece is our floor plan financing higher floor plans, higher rates. Our share of that with our JV partner goes up as well.

[Gerrick Johnson, BMO Capital Markets]

Okay. When you buy down and offer promos, does that go against your financial services income? Or is that against gross margin?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Gross margin.

[Gerrick Johnson, BMO Capital Markets]

Okay. So it doesn't impact financial services?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

No. But the higher -- the more that we finance the rebate that we get from those partners impacts financial.

[Michael Speetzen, CEO & Director]

Yes, we share in the return on their portfolio. So we'll get money back, but it gets booked as financial.

[Operator]

The next question comes from Xian Siew with BNP Paribas.

[Xian Siew, BNP Paribas Exane]

I wanted to ask a little bit more about retail sales. I was just wondering, is there anything we should think about in terms of cadence within the flat for the year? Is 1H plus 2H different? Anything to think about maybe on a quarterly basis? Any color would be helpful.

[Robert Mack, CFO, EVP, Finance & Corporate Development]

No. I mean, we expect to return to more normal seasonality. So I think we've said a couple of times, we think that in general, as inventory improves, consumers' behavior will return back towards buying in time for the riding season. So spring into summer will be better, and then they'll -- you'll especially for motorcycles. I think that will be close to normal. Boats is trending back towards its normal seasonality.

We had a couple of years where people were buying late in even Q4 in the cold season to make sure that they had their boats for the spring season. And I think as things return to normal, people are kind of moving back towards the put a deposit on it and retail happens really in the spring when they pick the boat up. So I think you'll see that dynamic.

And then I think on the share side, it's -- we're continuing to make progress, ship and RANGER. And so you'll see that build through the year as we look to take share back in that market where we lost share, primarily due to under-shipping what our historic share levels have been.

[Xian Siew, BNP Paribas Exane]

Okay. Got it. And then maybe just 1 quick 1 on pricing. It sounds like maybe not so much of a benefit this coming year, but still holding. But at the same time, it sounds like are ASPs obviously higher than 2019. I know there's some mix in there, but I guess are you seeing any pushback on pricing? It sounds like no, it sounds like the consumer continues to accept your pricing increase? Is that fair? Or are you seeing any kind of -- anything on the affordability equation?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Yes. I mean there's certainly higher promo in '23 versus '22 and some of that is designed to counterbalance particular units where we feel like we got maybe a little ahead of the curve on the price ratio relative to the competition, but that's all factored into our guidance and how we built the plan for the year.

It really is ASP driven, and I think folks underestimate this change in mix, both on and the mix to crew and then the -- because it's a kind of a double benefit, right? It's a mix to crew, which are larger, more expensive vehicles and then a mix to the premium end of the multi-passenger vehicles. and our increase in like factory install and things where we get much higher PG&A capture. So that's really the bulk of the driver in the ASPs.

[Operator]

Next question comes from Scott Stember with MKM Partners.

[Scott Stember, MKM Partners]

Just 1 for me. PG&A. You guys are talking about how this would most likely be the most resilient part of your business in '23. But can you break out how much of that business is, I guess, not attachment based and how much is brake fix and more sustainable in a tougher economic environment?

[Robert Mack, CFO, EVP, Finance & Corporate Development]

Yes. We don't -- we haven't historically given out those breakdowns on the business. But what we have historically seen, and we saw it through the course of the pandemic, but people couldn't get units, they were fixing their old units, riding levels are staying high. So we've seen continued good sales of kind of more of the maintenance parts.

And the other dynamic that happens when people can't get new units, whether it's availability or in the event of a downturn, the their interest and willingness to pay for to buy a new unit, we see them come back and accessorize their older units. So we don't expect or know any reason why that trend would change, but we don't really break out of how the G&A business falls between to and [indiscernible] upgrade.

[Operator]

This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.