Cyberattack halts BRP production, analyst adjusts estimates

In a research note titled “Cyberattack Halts Production; Adjusting Estimates,” BMO Capital Markets analyst Gerrick Johnson provides an update on the Aug. 8 ransomware attack on BRP.

“On August 8 BRP (DOO) was the target of a ransomware attack. To preserve the integrity of its data and systems DOO shut down its entire IT system. These actions resulted in the halting of production and inoperability of digital dealer/supplier interfaces including ordering, shipment tracking, and warranty claims processing. DOO believes it will make up lost production and assures investors that it will still be able to achieve previously issued FY23 financial targets. We are reducing our FY2023/FY2024 estimates nonetheless owing to lost sales and incremental remediation costs.

“Key Points

“Manufacturing was restarted on 8/15 at Valcourt, Rovaniemi, Sturtevant, and Gunskirchen; facilities that produce snowmobiles, three-wheel vehicles, Switch, and powertrains. DOO's Mexico facilities, where it produces ORV and PWC, came back online the following week (8/22), though some facilities weren't operating at full capacity for almost three weeks. DOO was still receiving parts during the downtime, and has capacity to catch up in all products except, perhaps, SSVs. Dealer systems took longer to come back online and most functionality has now been restored.

“According to dealers, product deliveries, slow to begin with, dried up for a couple of weeks, resulting in some canceled customer pre-sales and loss of sales to competitors (most often cited share gainer has been Kawasaki). Dealers were unable to order units or parts during the downtime, with the biggest frustration being the inability to perform warranty and service work for customers.

“DOO admits that information on certain employees and suppliers has been compromised, but that the impact should be limited in quantity and sensitivity. RansomEXX Gang claimed responsibility for the attack and posted 29.9GB of files allegedly stolen from the firm, including non-disclosure agreements, supply agreements, contract renewals, etc.

“Our channel checks indicate that demand for DOO's powersports products remains strong, though the backlog pressure has subsided somewhat owing to macro uncertainty. In the marine business, dealer reaction to DOO's Manitou and AlumaCraft boats with the new hidden outboard ‘Stealth Technology’ has been mixed. We think this line will require more marketing effort to convince skeptical boaters of the merits of the new platform. We are lowering our FY23 and FY24 earnings estimates to reflect lost sales owing to the cyberattack, incremental remediation costs, and a higher marketing budget for Manitou/AlumaCraft.”

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