Robert Mack: Yes. That’s relatively accurate. I think most of our overspend in Q4 in G&A was the increase in the product liability accrual. And it’s really just a confluence of — we had a lot of cases going through the court system in Q3, Q4. We update our analysis on those accruals twice a year and both for incurred but not reported cases plus specific cases that we are aware of and where there’s been discovery, and we have knowledge of kind of facts and sometimes rulings from pretrial motions. And so that that update to that accrual was larger than what we were anticipating larger than it’s been historically, and it’s really just driven by the quantity of cases that kind of got moved in the last couple of quarters and the impact they had on that analysis.
So as you think about — you think about 2024 and OpEx. We’re going to — we’ve kept a similar run rate for legal, not the fourth quarter run rate, but the full-year. And then our OpEx is basically flat, and it’s a combination of the headwinds or the merit and cost of living type increases returning the bonus pool, we plan it at full payout, which obviously we don’t have this year given that we missed our guidance and then the tailwinds. We’ve done some cost-cutting and work around efficiency in the organization as we head into the year. Obviously, we’re being very judicious on hiring and things like that. But we didn’t want to cut our focus on engineering and innovation given that really the challenge for 2024 is really just this first quarter revenue drop.
So we continue to keep those investments in. Obviously, we’ll look at all that if the year turns out to be material different than what we think it is today.
Michael Speetzen: And Megan, I said it in my prepared remarks, but it merits reemphasizing it. The majority of these costs are associated with products that are back before 2018. And the thing to keep in mind is during COVID, the legal, the court system kind of essentially shut down and has just kind of gotten back into getting up to speed, so the pace and movement of these cases has been happening pretty quick. And as you can imagine, we’re obviously trying to do the best that we can to stay on top of it. Bob mentioned that we’ve planned ’24 at a very similar level to what we saw in ’23. We’re keeping a close eye on it. Obviously, I think it’s not unique to us. The legal environment is pretty challenging right now and cost overall of settlements and trials and all that are much higher than they have been historically.
So we do have product liability insurance. So we do have that benefit factored in as we think about financial guidance and how we want to handicap potential risk.
Megan Alexander: Okay, great. That’s helpful. And then maybe the same question on promotions. What are you seeing today relative to the fourth quarter in terms of those promotional levels and in the context of inventory up 5% versus ’19, I think your expectation was for it to be flat to slightly down. So how should we think about that promotional impact to the first quarter? And what’s kind of your confidence level that this is all contained to the first quarter?
Michael Speetzen: Well, I mean, a couple of things. We ended up doing probably a bit more in the fourth quarter, as I mentioned, given some of the competitive dynamics around noncurrent inventory. As best we can, we can tell that, that is coming down relative to where it has been. But if you look at the first quarter of ’24 versus first quarter of ’23, our dealer inventory was probably 40 days lower than optimal. So there was very little promo in the channel. We were all still trying to get ourselves caught up in the first quarter. And so when you do that year-over-year comparison, it’s pretty substantial. Look, it’s really going to come down to the amount of discipline that we and others are going to have around dealer inventory, making sure that there isn’t noncurrent inventory sitting on the floor in excess as well as just making sure that we’re watching retail and making the adjustments to the shipments.
And we know we’ve made that commitment. We’ve heard others now starting to voice that, which is encouraging. And I think that’s going to be an important dynamic to make sure that promo remains in a relatively contained fashion. Our team has done a lot over the past few years in terms of the investments we’ve made in our CRM systems so that as we go out with offers, obviously, you’ll have blanket offers that are around financing that we know are pretty successful and obviously hit a certain tier bracket of credit rating. But a lot of our other offers go through and are much more targeted to customers that have been in the Polaris family for a while, and we know it’s time to upgrade. We’re really trying to do that so that we end up with a much more efficient use of that money than just doing a blanket offer.
Megan Alexander: Okay, got it. Thanks, Mike.
Operator: Thank you. The next question is from Craig Kennison with Baird. Please go ahead.
Craig Kennison: Thanks for taking my questions. Really goes to the 2026 plan. For investors to believe it, I think they need to believe in significant margin expansion, which frankly is harder to believe, given some of the operational challenges that you faced in 2023. I guess how would you frame the potential to achieve that 2026 margin plan? And what are some of the key drivers to achieving it and maybe your confidence level in some of those drivers as well? Thank you.
Michael Speetzen: Yes, I think I feel pretty good about everything. The margin EBITDA margin is obviously the one we’re contending with right now. And I’d say it’s a couple of things, Craig. I mean it’s obviously why we have pushed the team hard to work on the inefficiencies. If you go back in time, our factories were dealing with a fair amount of I don’t want to say chaos, but there was a fair amount of inefficiency given what was happening from a supply chain standpoint. And during that time period, I’d tell you, we kind of lost our way. The lean focus making sure that we were managing down to the daily cost budgets in the plan, it was all focused on trying to get product out. If you remember the days of dealer inventory having an 80-day deficit relative to targets.
I give the team a lot of credit for working hard to get the product out so that we could make sure that we were getting consumers the product that they needed. The issue really started this past year when we saw the supply chain becoming less and less of a factor yet the performance in the factory wasn’t improving. And a lot of the things that happened during COVID really came back to work against us. Specific examples would be in our indirect versus direct labor. Typically, you have more direct labor than you do indirect and then some of our plants that balance got out of whack. And that’s really driven by needing extra teams to go out and do rework and supplemental quality checks because you’re moving product through essentially a secondary assembly line.
