LiveWire Group, Inc. (NYSE:LVWR) Q2 2024 Earnings Call Transcript

LiveWire Group, Inc. (NYSE:LVWR) Q2 2024 Earnings Call Transcript July 25, 2024

LiveWire Group, Inc. beats earnings expectations. Reported EPS is $-0.12208, expectations were $-0.15.

Operator: Thank you for standing by and welcome to the Harley-Davidson 2024 Second Quarter Investor and Analyst Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Sean Collins. Thank you. Please go ahead.

Shawn Collins: Thank you. Good morning. This is Shawn Collins, the Director of Investor Relations at Harley-Davidson. You can access the slides supporting today’s call on the internet at the Harley-Davidson investor relations website. As you might expect, our comments will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in today’s earnings release and in our latest filings with the SEC. Joining me for this morning’s call are Harley-Davidson Chief Executive Officer, Jochen Zeitz, also Chief Financial Officer, Jonathan Root, and we have LiveWire’s Chief Executive Officer, Karim Donnez. With that, let me turn it over to our CEO Jochen Zeitz. Jochen?

Jochen Zeitz: Thank you, Shawn, and good morning, everyone. Thank you for joining us for our Q2 2024 results. In Q2, consolidated revenue was up 12% driven by revenue growth of 13% at HDMC and 10% at HDFS. Additionally, we saw a strong improvement in earnings per share to $1.63 for the quarter. Consolidated operating income in the second quarter was $241 million, up 9% from the prior year, driven largely by an increase of 21% at HDFS. In addition, HDMC operating income was up 2% and the operating loss of LiveWire was $4 million less than a year ago. Through the quarter, we saw the continued impact of the high interest rate environment affecting our industry and in particular, big ticket consumer discretionary sectors. That said, retail sales of new motorcycles in the U.S. were still slightly positive versus prior year with a varying degree of performance from state-to-state.

Turning to our global performance, it’s important to note that we see mixed picture also across our international markets. In EMEA, retail sales declined by 1%, with certain markets in central Europe underperforming, while others overperformed. In Asia Pacific, Q2 retail sales declined by 16%, driven by weakness primarily in China. North America including Canada was down 1% and Latin America was flat. Looking ahead we are narrowing our retail and wholesale expectations to reflect the current environment. We continue to expect that retail units sold and wholesale unit shipments will be balanced by the end of ‘24. Dealer inventory should be at similar levels as at the end of last year. This implies a reduction in dealer inventory of approximately 30% versus current levels.

This should allow our network to take advantage of opportunities in the market. Being mindful and supporting dealer health following the record levels of profitability in ‘21 and ‘22, we expect these shipment reductions to positively impact dealer floor plan expenses. Our performance in the first-half of the year continue to be aligned to our Hardwire strategic pillar profit focus with strong mix and notable growth in touring especially CVO models, despite the challenging market environment in the overall industry. Building on our commitment to invest in our core categories, we’ve been extremely pleased with the strong response to our new era of touring motorcycles with our ‘24 and Road Glide and CVO offerings. The product continues to receive a strong reception in the market from the industry, customers, dealers, and media alike as it grows awareness globally.

Additionally, in the U.S., we saw strong gains in share in the 601 plus CC market at the backdrop of an overall declining industry in Q2 and year-to-date, while Harley-Davidson touring being up 5.3 percentage points in share and over 11% in unit growth. As we look at our customer, our insights tell us that performance is an increasingly important part of being a Harley-Davidson rider, with 44% of riders considering performance to be the most important feature when purchasing, 73% of owners thinking it’s important to own a performance-related motorcycle, and over 80% of owners seeing an increase in attention-paged performance. Through our involvement in the King of the Bagger Racing Series, with Harley-Davidson riders holding the first and third place on the leadership for this season, we continue to celebrate and emphasize performance as a key differentiator for the Harley-Davidson lineup.

This performance angle has continued to be popular with riders, as seen by the strong performance of our ST offering. In addition, we selectively focus on opportunities and segments that we believe have a path to in-market success and profitability, capitalizing our brand’s strength and product capabilities, and selectively complement with partnerships. Looking at our partnership with Hero, we continue to be pleased with the reception that the X440 has received since launch and we look forward to exploring further opportunities. LiveWire is pioneering the industry for EV motorcycles. However, we are realistic about the overall environment, especially in the U.S. As we detailed at the last quarter, we plan to continue to be prudent in our investments and driving cost productivity at LiveWire, as you’ll hear from Karim.

That said, we are also further committing to support LiveWire in lowering the breakeven point. We expect further cost reductions to adjust to the overall market environment and to reduce the cash burn of the business in the future. I also wanted to highlight the recent Department of Energy grant of $89 million that Harley-Davidson was awarded to invest in our facility in New York, Pennsylvania to support its overall operations as well as the manufacture of EV motorcycles for LiveWire. This grant is specifically targeted to strengthen and help expand Harley-Davidson’s manufacturing facility in New York to incorporate new paint and assembly equipment, supporting the manufacturing of all of its motorcycles and training of our union workforce, all while providing meaningful community and workforce enhancements.

We look forward to working with the Department of Energy to realize this investment into New York facility. Harley-Davidson Financial Services or HDFS, delivered a strong quarter with a meaningful $23 million or 10% revenue increase in Q2. This was primarily driven by higher retail and commercial finance receivables, as well as higher average yields as the portfolio continued to reset over time. Thanks to a growing penetration today, roughly 70% of new and used Harley-Davidson motorcycles are being financed through HDFS in North America. But crucially, HDFS allows us to understand our customers better through the unique insights and customer dynamics that we’ve access to. One of those insights that I’d like to call out today is our average age customer profile.

As we look back through our HDFS data over the past, we are able to see that the average age of our customers purchasing a motorcycle, used and new is about 45. This is a fact-based metric that stands in contrast to the narrative that has been perpetuated by some commentators. As you can see in the slide that we provided as part of this presentation, the average age has not moved significantly in the last 10-years and even much beyond. In addition, nearly 30% of HDFS loan originations in the past five years were made to customers 35 and younger, with 75% 54 or under. In the average MSRP and the segments we compete in, we continue to expect our customer to age into our product, while building brand awareness and desirability, starting at a much younger age, helped by all our efforts to build new and keep existing riders riding as part of our Hardwire strategy.

With that said, the Hardwire puts customers at the forefront of Harley-Davidson’s products and experiences and defines customers as people, who may dream of motorcycling or just learned to ride a Harley-Davidson motorcycle, all the way to riders who are deeply passionate about and invested in the Harley-Davidson lifestyle and community. Within Harley-Davidson experiences, we could recognize the important role that events play in bringing our community together. This is especially true with our Harley Owners Group. Earlier this year in Senegal, Italy, we hosted the 30th European home rally. This exceeded all our expectations with an estimated 100,000 fans and Harley Owners Group members attending, and over 20,000 motorcycles visiting from Europe and beyond.

In addition to the many events happening in riding season around the world, we also had a significant presence at Laconia and Born Free, celebrating our customers that are typically younger than our average age. Today, thesis kickoff our second annual homecoming festival right here in our hometown. We’re excited to welcome our community to Milwaukee. Events will be held across our footprint here in the city, at our museum, product development center, and Juneau Avenue headquarters, including Davidson Park that the Harley-Davidson Foundation formally unveiled just recently. With headliners including Jelly Roll and the Red Hot Chili Peppers performing at Veterans Park, it’s going to be a weekend to remember. Now before I turn it over to Karim, I’d like to comment briefly on our performance since the initiation of the hardware and subsequent Hardwire too.

Despite the challenging environment, we are pleased with the progress we continue to make in executing our strategy as we progress towards generating value for our shareholders over the long-term. We continue to believe there’s meaningful growth potential for the company and we remain focused on realizing that opportunity. We will continue to pursue delivery for our strategic pillars through clear focus with plans to drive significant productivity across the business in addition to evaluating and pursuing selective opportunities and continuous product innovation to drive growth and ridership. And through this process, we will continue to evaluate our decisions when compared to the wider focus on returning surplus capital to our shareholders.

With that in mind and consistent with our capital allocation decisions to-date, today we are announcing our plan to re-purchase $1 billion in shares. Details were announced in our press release that went out earlier today. The dividend policy remains unchanged and the company continues to expect the dividend for the remaining quarters of ‘24 to be in line with Q2 and Q1. And with that I’ll hand it over to Karim.

Karim Donnez: Thank you, Jochen. Good morning everyone. We’re happy to report that LiveWire continued to attract new riders with a triple-digit increase in LiveWire branded unit sales, compared to the second quarter of 2023. Retail sales outpaced wholesale again in the second quarter, making LiveWire the number one on-road electric motorcycle retailer in the U.S. for the first-half of 2024. Our market presence continued to grow steadily, especially in Europe, with two models, LiveWire 1 and Del Mar, now in market. In late June, we also launched STACYC Electric Balance bike in the EMEA market to broaden our product offering and reach new customer segments. Additionally, LiveWire operating growth improved by 12%, compared to the second quarter of 2023, underscoring the company’s approach in reducing costs, while expanding its product line and market presence.

Our cost-cutting measures are not just about reducing expenses. They are about driving efficiency and ensuring that we allocate our resources to the areas that matter the most as we continue to work on offering the best value proposition to all our stakeholders considering the current market environments. In the second-half of 2024, LiveWire remains committed to continuous improvement and innovation from our product development to our manufacturing processes. We are focused on finding smart and effective ways to operate, while reinforcing growth, profitability, and category leadership as priorities. And as mentioned by Jochen, we are also planning for a significant reduction in cash burn next year, with stronger business fundamentals in place and expenses aligned with market reality, while continuing to drive awareness and demand.

Thank you and now I’ll hand it over to Jonathan.

Jonathan Root: Thank you, Karim and good morning to all. I plan to start on page five of the presentation where I will briefly summarize the consolidated financial results for the second quarter of 2024 and subsequently I will go into further detail on each business segment. As Jochen already commented, consolidated revenue in the second quarter was up 12% driven by HDMC revenue growth of 13% and HDFS revenue growth of 10%. Consolidated operating income in the second quarter was $241 million, up 9% from the prior year period, driven largely by an increase of 21% at HDFS. In addition, HDMC operating income was up 2% and the operating loss at the LiveWire segment was an improvement of $4 million, compared to a year ago. The consolidated margin in the second quarter was 14.9%, which compares to 15.3% in the prior year period, where HDMC operating income margin was down 155 basis points year-over-year, and HDFS operating margin was improved by 254 basis points.

I plan to go into further detail on each business segment’s profit and loss drivers in the next section. Second quarter earnings per share was $1.63, up 34% and compares to $1.22 last year. As we flip the page to first-half results, total consolidated HDI revenue of $3.3 billion was up 4%, compared to last year. The components of this were at HDMC, revenue increased by 3%. At HDFS, revenue increased by 11%. And at LiveWire, revenue declined by 25%. Total consolidated HDI operating income was $504 million, which was $87 million lower than the prior year. The components of this were, at HDFC operating income of $436 million was 18% lower than prior year, reflecting an operating margin of 15.4% in the first-half of the year. At HDFS, operating income of $125 million increased by 7% in the first-half of the year.

And at LiveWire, an operating loss of $57 million was in line with our expectations. Year-to-date earnings per share was $3.34, up 2% in comparison to $3.27 last year. Let me turn to slide seven, and I will aim to be brief here as Jochen earlier provided commentary on both Q2 retail performance by region and recent market share highlights. Dealer inventory at the end of Q2 is up from the levels at the end of Q2 2023 and just slightly down versus levels at the end of Q1 2024. We believe current dealer inventory and product availability are in largely healthy positions overall as we are in the midst of the important summer riding season in North America and Europe. We continue to prioritize availability and inventory of Touring, Trike, softail, and CVO motorcycles, and ensure our dealers have an appropriate supply.

We will talk further about our expectations for both retail and wholesale motorcycles in just a few minutes. Looking at revenue, HDMC revenue increased by 13% in Q2, focusing on the key drivers for the quarter. 11 points of growth came from increased wholesale volume at HDMC, where motorcycle shipments in the quarter were ahead of last year by 16%, whereas Q2 2023 shipments were adversely impacted by an unplanned production suspension at our U.S. manufacturing operations. 4 points of decline came from pricing, which includes the impacts of the pricing surcharge elimination, other pricing actions on 2024 model year, and sales incentives for only our model year 2023 motorcycles. Mix contributed 7 points of growth as we continued to prioritize our most profitable models and markets.

And finally, 1 point of negative impact came from foreign exchange. In Q2, HDMC gross margin was 32.1%, which compares to 34.8% in the prior year. The decrease of approximately 270 basis points was driven by lower overall pricing, inclusive of the impact of surcharge removal, higher manufacturing and other costs, and adverse impacts from foreign exchange. This was partially offset by positive impacts from volume, improved mix, and lower raw material prices. Let me provide some color on a few of the specific drivers. Pricing had the biggest adverse impact to margins where we priced the all-new touring motorcycles strategically and we have additional incentive or promotional spend in Q2 centered on interest rate assistance to consumers on model year 2023 motorcycles only.

Improved mix had the biggest positive impact on our margin, where we prioritize the shipment of touring and CVO motorcycles. Lastly, foreign exchange exposure was unfavorable in Q2 with the largest impact seen in the Japanese yen and euro. In addition, we experienced around 2% of cost inflation on an annualized basis in Q2. On the operating expense side, expenses were $12 million higher relative to prior year, due to higher spend on regional marketing and warranty costs. In addition, we had some employee exit charges associated with recent select headcount reductions primarily at the operating expense level. These moves were made in an effort to increase future OpEx productivity. HDMC operating margin came in at 14.7% in Q2 from 16.2% in the prior year.

For the first-half of the year at HDMC, gross margin was 31.7%, which compares to 35.4% in the prior year’s period. Operating income was $436 million, which was $94 million, or 18% lower than prior year. HDMC operating margin of 15.4% through the first-half was 3.8 points lower than prior year. The decrease was due to less favorable pricing, manufacturing, and foreign exchange. These effects were partially offset by improved mix and a modest increase in volume. In addition, year-to-date lower margin reflects the deleverage we experienced in Q1 as a result of Q1 2024 wholesale product, which was produced in Q4 of 2023, where fixed costs per unit were higher due to lower production. Lastly, in the first-half, operating expenses were $13 million or 3% higher in line with previous discussion.

Before we turn to the next slide, let me give a brief update on our Productivity Costs program, one of the initiatives identified as part of the Hardwire strategy, where we are driving improvement in productivity to eliminate the $400 million of incremental supply chain costs encouraging 2020. To simplify and provide more transparency, we are now excluding leverage from productivity, while still holding our previously communicated multi-year target of $400 million, which originally included a benefit from leverage of between $50 million and $70 million. Maintaining the $400 million target without the positive impact of leverage is a testament to the confidence we have in our cost reduction programs. Excluding leverage, we delivered approximately $24 million in 2022 and $123 million in 2023.

In 2024, we’ve delivered $50 million through Q2. Turning to slide 11 now, and the financial services segment. At Harley-Davidson Financial Services, Q2 revenue increased by $23 million or 10% driven by higher retail and commercial finance receivables, as well as higher average yields as the portfolio continues to reset over time due to higher base rates caused by Fed rate expansion, which were driving higher interest income. HDFS operating income was $71 million, up $12 million or up 21%, compared to last year. The Q2 increase was driven by higher interest income and lower provision for credit losses, which were partially offset by increased borrowing costs and higher operating expenses. Total interest expense was up $8 million or up 9% versus the prior year.

The increase was driven by a higher cost of funds as lower interest rate debt matured and was replaced with current market rate debt. In Q2, HDFS’s annualized retail credit loss ratio was 3.1%, which compares to an annualized retail credit loss ratio of 2.6% in Q2, 2023. The increase in credit losses was driven by several factors relating to the current macroeconomic environment and the related customer and industry dynamics. In addition, the retail allowance for credit losses for the second quarter came in at 5.4% up from 5.3% a year ago and at the same level as the 5.4% at the end of Q1 2024. This reflects our best estimate of the current and future retail lending environment. Total retail loan originations in Q2 were down 4%, while commercial financing activities were up 52% to $1.4 billion.

Total quarter end net financing receivables, including both retail loans and commercial financing, was $8 billion, which was up 7% versus prior year. Turning to slide 12 and the first-half results at HDFS, first-half revenue increased by $49 million or 11%. HDFS operating income was $125 million, up $8 million or up 7%, compared to last year. The first-half increase was driven by higher interest income, which more than offset higher borrowing costs, higher provision for credit losses, and higher operating expenses. For the LiveWire segment, As Karim mentioned, electric motorcycles revenue increased in the second quarter of 2024, compared to the prior year period, due to higher unit sales of EV motorcycles in the quarter. At STACYC, the electric balance bike business, revenue was down compared to the prior year, which was expected due to a reduction in third-party branded distributor volumes.

Selling, engineering, and administrative expenses were down $3 million, or down 9% in Q2, compared to the prior year. LiveWire operating loss of $28 million, $4 million less than a year ago, was in line with our expectations as LiveWire continued to invest in new motorcycle models and also actions initiatives to reduce the overall cost of sales for EV motorcycles. For the first-half result at the LiveWire segment, revenue was $11 million, down 25% from the prior year, as a result of lower revenue at STACYC, the electric balance bicycle business. For the first-half of the year, LiveWire sold 275 electric motorcycles, which is a triple-digit increase over the prior year period. For the period, LiveWire operating loss was $57 million, which was in line with our expectations.

Wrapping up with consolidated Harley-Davidson Inc. Financial results, we delivered $578 million of operating cash flow in the first-half of 2024, which was up from $411 million in the same period last year. The increase in operating cash flow was due primarily to positive changes in working capital during the first-half of 2024, compared to the first-half of 2023, driven by a decrease in inventories during 2024. These positive impacts were partially offset by higher net cash outflows related to wholesale finance receivables. Total cash and cash equivalents ended at $1.8 billion, which was $327 million higher than at the end of Q2 prior year. This consolidated cash number includes $113 million at LiveWire. Additionally, as part of our capital allocation strategy and in line with our commitment to return capital to our shareholders, in Q2 we bought back 2.9 million shares of our stock at a cost of $102 million.

This brings our total amount of shares bought back in the first-half of 2024 to 5.5 million shares of Harley-Davidson common stock at a total value of $200 million. This compares to 4.1 million shares as a total value of $156 million in the first-half of 2023. We see 2024 not only as a year to balance retail sales and wholesale ships, but also as a year to improve balance sheet efficiency. As it has become clearer that volume will be toward the lower end of our original expectations, plant production cuts in the back half of the year will be more aggressive than the reductions we envisioned for retail sales and wholesale shipments. This produces a gross margin headwind in Q3 and Q4 that is greater than we originally estimated, but we believe position as the company more appropriately for 2025, frees up additional cash and reduces on select risk on an ongoing basis.

We continue to expect that retail units sold and wholesale unit shipments will be balanced by the end of 2024, and we now expect retail and wholesale to be in the range of 163,000 to 168,000 units. Retail to be in the range of flat to up 3% for the full-year. Wholesale shipments to be in the range of down 7% to down 10% for the full-year. As we look to guidance for the year, there are a number of elements that remain unchanged from the prior quarter, but there are some changes for HDMC, and that is where I will begin. We now expect revenue to be down in the range of 5% to 9%, and this has been narrowed from our previous flat to down 9%. Operating income margin is now projected to come in between 10.6% and 11.6%, rather than the 12.6% to 13.6% range that we had previously guided to.

The downward revision is primarily due to production and wholesale reductions and the impact of leverage. At HDFS, guidance for the full-year 2024 remains unchanged where we expect operating income to be flat to up 5%. At LiveWire, guidance for full-year 2024 remains unchanged, where we continue to expect to deliver between 1,000 and 1,500 electric motorcycle units and an operating loss in the range of $105 million to $115 billion. And we continue to expect capital investment in the range of $225 million to $250 million. As we look at capital allocation in 2024, our priorities remain to fund profitable growth of the Hardwire initiatives, which includes the capital expenditures mentioned previously, paying dividends, and continuing to execute discretionary share repurchases.

As Jochen touched on, and this can be seen from our press release earlier today, we are announcing a new plan to repurchase $1 billion in shares through 2026. We feel this highlights our operating discipline, overall cash flow generation, and long-term earnings power and is supported by our continued commitment to deliver a 15% operating income margin by the end of 2025. And with that, we’ll open it up to Q&A.

Q&A Session

Operator: Thank you. [Operator Instructions] Thank you. Our first question comes from Craig Kennison from Baird. Please go ahead. Your line is open.

Craig Kennison: Hey, good morning. Thanks for taking my question. I guess it’s a two-parter. First, what does guidance assume for retail in 2024? And then secondly, bigger picture here, this was a big year for innovation for Harley-Davidson and all the product reviews have been really exceptional, but just not seeing the volume flow through like you might have hoped. What’s your bigger picture assessment of where your consumer is at given, you know, you’ve really offered a very good product and it hasn’t moved the needle as much as maybe you would like?

Jochen Zeitz: Yes, Craig, Jochen, I’ll take the two questions. In terms of retail guidance, we expect 0% to 3% full-year guidance. In terms of innovation, I think it has very much moved the needle. If you look at how the market has developed, the overall industry has developed in the second-half with most industry players being down high-single to ­single-digit declines with us and U.S. being slightly positive, it certainly has moved the dial significantly. So the innovation is working. Just like with any new motorcycle, it takes time for customers to know about it. We think that about 30% of our engaged Harley-Davidson owners are now very aware of our new product, but that leaves about two-thirds of the owners that are not quite well aware of the new bikes yet.

And so this product will help our business in years to come, which we’re very pleased with. And as you said, the reception has been extraordinarily positive. And the product differentiates significantly from our previous touring bikes. And we also have a strong product portfolio innovation platform for the coming years as well. So as I think, I’ve said many times before, these bikes that we introduced were initiated with the start of our Hardwire Stage 2 strategy and the beginning of more products to come over the coming years, but overall exceptional reception which I think is showing up already considering the industry and how it’s fared in the second quarter.

Craig Kennison: Thank you.

Operator: Our next question comes from Alex Perry from Bank of America. Please go ahead. Your line is open.

Alex Perry: Hi, thanks for taking my question here. The HCMC op margin came in nicely despite the gross margin pressure in the quarter. Can you just talk about sort of the second-half gross margin assumptions? Should we continue to expect pressure from pricing and sales incentives? And then it looks like you managed the SG&A expense line quite well. Just maybe talk about sort of what you’re doing in the back half there and what we should expect there? Thank you.

Jochen Zeitz: All right. Hi, Alex. So I’m happy to take that. So I think from an op margin perspective overall, we are certainly pleased in terms of where the company is performing particularly in light of where we are from a production volume perspective. I think we’ve talked with you a little bit about that previously. As we think about some of the actions that we’ve taken as a company, we certainly are making sure that we’re kind of moving through the P&L, looking at places that we can make sure that we are intelligent in taking costs out of the business in a way that doesn’t do anything to harm the long-term nature of the business and really allows us to maximize current results. We certainly have kind of instituted a little bit of belt tightening for 2024.

You saw that through the employee related costs that we talked about. As we move through the back half of the year, you obviously see some of that benefit begin to unlock from an OpEx perspective. And then in addition, we have a number of investments that we’ve made in the manufacturing and cost of sales side in order to make sure that we are working collaboratively with suppliers to reduce and remove costs for motorcycles in a way that obviously is transparent from a consumer perspective. And so as we look at all of that, you know, that’s where we updated our overall guide from an OI perspective. And so you see that flow into the decision that we made and what we updated.

Alex Perry: Perfect. That’s really helpful. Best of luck going forward.

Jochen Zeitz: Thank you. Operator Our next question comes from James Hardiman from Citi. Please go ahead. Your line is open.

James Hardiman: Hey, good morning. A couple retail questions. How did that trend over the course of the quarter? I think we’ve seen across power sports some sort of tipping point where consumers seem to be pushing back even more so than they were earlier in the year? And I guess in the context of your guidance, I think year-to-date, your retail is down about 2%. And yet the full-year guidance, I think you just said, Jochen, is flat to up 3%. So that seems to imply retail growth in the second-half. Help us understand why you feel comfortable with that assumption, particularly as we get further away from the model year ‘24 launch?

Jochen Zeitz: Yes, Good morning, James. I’ll take the first question. The trend over the quarter was extraordinarily consistent, if I look at the U.S. market. We did not trend throughout the quarter any month negative. So very consistent if you look at the three months of Q2.

Jonathan Root: Sure, James, I can talk a little bit about kind of our back half view. So as we go through and we take a look at how 2023 developed and then kind of how that flows into 2024 from a year-over-year comp perspective, our toughest comp, as we kind of look back on last year was really around the way that we performed at retail in Q2. As we move into Q3 and Q4, we feel pretty confident in light of just refreshing our guidance and putting that out there. We’re pretty pleased that the reaction that we’ve had from a CVO perspective. Certainly pleased with kind of consumer and dealer reaction to Road Glide. We have good availability of inventory with trikes and things of that nature. So overall, we actually feel like we’re pretty well positioned.

If you recall about 12 months ago, we were talking through some challenge that we had from a production disruption standpoint we’re really pleased with the work that’s being done within our manufacturing and supply chain. We have a lot of consistency from a manufacturing perspective. That certainly wasn’t the case a year ago. So the level of confidence that we have as we look at the comps and then as we look at the way that we’re kind of running internally, you put all of that together. And with the dealer network, we have a lot of confidence in the numbers that we put forward and what we think the back half of the year will produce.

James Hardiman: Got it. Thanks, guys.

Operator: Our next question comes from Robin Farley from UBS. Please go ahead. Your line is open.

Robin Farley: Great. Two questions relating to retail. One is it looks like your touring market share maybe was down sequentially in Q2 versus Q1? If you could give us a little color on what’s going on competitively there that may have caused that shift? And then just a follow-up on your comments about retail in Q2, if it was sort of consistent. Given how much disruption there was for sort of the last two months of June — like June of last year and June of the prior year, it seems like June should have had a much better performance year-over-year than maybe the other two months. So does that concern you that you didn’t see that in June and what would have been, you know, probably one of the easiest comps of any month that Harley’s had? Thanks.

Jochen Zeitz: Yes, Robin, thank you. Welcome. In terms of market share, our touring market share was very strong in the second quarter. We had a significant increase, as I had mentioned in our press statement and in my speech, so significant growth in the overall touring segment in Q2. I’m talking U.S. right now, that’s talking globally. We have to consider that the touring motorcycles only started flowing into the international markets in May, so they had less time to settle in. And the touring segment internationally, only 25% of the total, while in the U.S. it’s significantly higher than that. In terms of the — as Jonathan mentioned, our comps in Q2 were much tougher than in the back half, because we had positive retail in the second quarter of last year.

So we’re comping a strong quarter and the production disruption that we’d seen pretty much materialized mostly in July of last year. So the effect of the closure of the manufacturing facility didn’t really impact our shipments significantly in the second quarter or in June of last year. So we wouldn’t have expected that to have materially impacted our coms versus the previous year. So overall, if you look at the entire quarter, you always hope for more, but considering where the industry is, we are very pleased and we’ve taken significant market share in the touring segment and I think that’s a real positive.

Jonathan Root: Yes, and Robin the only piece that I would add to is that we are pretty pleased with what we’re seeing in terms of total touring and total CVO volume. So from our perspective, we feel pretty confident in where we are for all of the elements that Jochen talked about, all the reasons that he talked about, and the share gains that we’re seeing.

Jochen Zeitz: I think one interesting statistic that I’d be happy to throw out here, we talked about average age, right, the 45 with the slide that we provided in our deck. If you look at the HDFS data and the average income, we’ve actually seen a continuous growth in average income per Harley user. So that’s a positive sign. And if you just look at new, not just new and used, the new customer sort of average income is actually 15% higher than five years ago with over $100,000. So we are seeing trending up in the overall average income of our customers, which we consider to be positive.

Robin Farley: Okay, thank you.

Operator: Our next question comes from Joe Altobello from Raymond James. Please go ahead, your line is open.

Joe Altobello: Thanks, hey guys, good morning. So earlier you mentioned that you expect dealer inventory to come down, I think you said 30% in the second-half and about flat with last year? When you talk to your dealers, would they like that number to come down even further? Because I’m sure that the dollar value of their inventory is higher than it was pre-COVID, particularly on a proof dealer basis. And interest rates are obviously much higher. So I’m curious what you’re hearing from dealers if they want that number to come down even further in 2025?

Jochen Zeitz: Well, most of our dealers are only starting to see the back shipments that are starting to flow into the dealerships in the third quarter. But I’d say overall we’ve had minimal pushback. And if there was a pushback, we would reallocate that product elsewhere. The 30% is a global average. We actually expect the inventory in the U.S. to come down by approximately 35% versus year to date towards the end of the year. So the U.S. dealers will actually see a further reduction. From our perspective, this is pretty significant. And I think the dealers will feel that also, starting now, that the shipments are actually going down significantly, that said, we want to be well prepared for our peak season in the coming couple of months, and we are well prepared.

We had no significant production issues at all. And so the dealer is well stocked. Obviously, flow plan is a consideration given the higher interest rates and the higher dollar values, which thankfully HDFS is also able to finance. But overall, we think that the reductions that we have implemented already that are going to be visible to our dealers going forward is pretty significant with a 35% decline versus current state.

Joe Altobello: Got it. Very helpful. Maybe just to follow-up on that, the outlook for retail growth in the second half. Maybe give us an idea of what you’re seeing in July?

Jochen Zeitz: Yes, I mean, look, I don’t want to really comment on current trading. We’re three weeks in and months, although in the second quarter everything was pretty consistent. We also were lapping. The production closed down in July of last year. Everything that we are seeing now has been factored into our full-year guidance. And, but I prefer from here going forward not to really talk about current trading, because it is overall always quite volatile. But rest assured that current trading has been incorporated in our four-year guidance.

Joe Altobello: Okay, thank you.

Operator: Our next question comes from Brandon Rolle from D.A. Davidson. Please go ahead. Your line is open.

Brandon Rolle: Good morning. Thank you for taking my questions. First, just on your dealer network, we picked up on some more dealership closures throughout the quarter? Can you talk about where you feel like your dealer network is right now and how these closures will impact overall future profitability for HDMC? Thank you.

Jonathan Root: Sure. Thank you, Brandon. So I’ll start, and I think from a dealer closure perspective, we certainly look to make sure that we are working to refine the dealer network, get location set up in the right way, and do that in a manner that really allows surrounding dealers, all of our entrepreneurial partners, to be profitable and really generate a business return that makes sense for them. So as we look, I think a couple of things. One from a Harley-Davidson Motor Company, Harley shareholders standpoint, we certainly are thoughtful in making sure that we have the right locations in place, that we’re reaching the consumers that we need to and that we have a path toward ensuring that we’re fulfilling the needs of our customers and our riders.

And then we also look from a dealer lens and really think through from a dealer partner perspective, are we building a network that’s profitable, sustainable, and there from a long-term standpoint. And we feel pretty good about the way that we’re partnering with the dealer network and the way that we’re allowing them to generate returns over time. So overall, I think yes, you’ll continue to see us be opportunistic in finding the right path from an overall dealer network design standpoint. And we will make sure that we do that in a way that doesn’t negatively harm Harley-Davidson shareholders. So we are ensuring that we are really developing the optimal distribution footprint. And then we do that with our dealer partners in mind too, to ensure that they are generating a return that makes sense for their investment.

Brandon Rolle: Great. And just one more question. You know, we receive a lot of incoming questions about maybe your ability to keep innovating. Obviously, this was a big refresh this year within the touring lineup, but what gives you confidence or what can you leverage from what you’ve learned this year to continue innovating and providing new lineups that resonate with your core consumer? Thank you.

Jochen Zeitz: Yes, I mean, we have a product portfolio plan that spans over many years, which we’ve initiated in 2021 with a Hardwire strategy and that is going to flow into the market in the coming years. So we feel very good about it. Most importantly, this touring launch is significant. You know that the previous platform had not been updated for well over 10-years, and this product is distinctively different to anything out there. So it makes everything out there that is not our new touring bikes look dated. And we believe that that will help us in years to come. But that said, there’s more innovation coming over the next few years. So we feel quite good about the pipeline that we have in place.

Brandon Rolle: Great. Thank you.

Operator: Our next question comes from Noah Zatzkin from Key Bank Capital Markets. Please go ahead, your line is open.

Noah Zatzkin: Hi, thanks for taking my questions. Maybe just first on HDFS, how are you guys feeling about the health of the book? And then our annualized retail credit losses kind of where you expected them to be right now? And then second if you could just kind of touch on maybe any market dynamics that you’re seeing that differ overseas. I know APAC was a bit softer. I think some of the other regions were pretty similar to North America. So any color there would be helpful. Thanks.

Karim Donnez: Go ahead, Jochen. Sorry.

Jochen Zeitz: No, that’s fine. Sorry. I’m starting from the back. So market dynamics, I mentioned Asia. Obviously, the one outlier there in terms of in terms of retail decline, significantly impacted by China. Asia was growing six quarters in a row, now it’s the fourth quarter down. Obviously not pleased with that, but that I can certainly attribute to the overall difficult market in mind, in particular in China and in some Southeast Asian markets. So I think that’s the, if you look at the retail data, that’s the one region overall that has had a much tougher time, but also had seen significant growth well before that decline happened.

Jonathan Root: Okay. All right, Noah. And then on to the HDFS side of things. So from an overall HDFS health perspective, you’ve seen where we are from an overall allowance standpoint. You can compare that back to where we were at time of Cecil. And you can see that we’re pretty thoughtful and in a good position from an overall reserve standpoint and well positioned on that front. As we think about what we’re seeing on the delinquency and loss side of the equation, overall consumer delinquency is a little bit higher than where we would optimally like it to be, but we feel that the HDFS team is doing a great job of really controlling delinquency and then working with customers. And then as you kind of look at how that translates through to an overall loss perspective, losses are broadly in line with sort of a seasonality curve that we would often see, particularly in sort of this credit environment.

When we go off and compare to auto lenders and do some benchmarking there we actually feel pretty good about the way that the HDFS team is performing the way that, that portfolio is performing the other piece that we always make sure that we take a look at from HDFS at standpoint is how are things like losses and reserve moving relative to revenue and so overall again we remain pleased with how the HDFS business in total is performing. And you see that from our guidance where we’ve, you know, affirmed or confirmed our guidance that we started the year with, so broadly in line with where we thought the year would unfold.

Jochen Zeitz: And I think Noah, just to add on to what I’ve said earlier and to answer your question about what obviously in various markets, I’d mentioned in my speech that we — there is no consistency across markets. If you take EMEA as a region, you have some markets that are particularly strong, such as Spain, Italy, Portugal, and you have some markets that are not doing so great, such as Germany and France. And so there is not, and then in the U.S. there’s also, you know, the varying degree, some markets are up significantly, other markets are down. So there’s no consistency overall where every market sort of performs equally, which is quite interesting to see that. And much of that we believe also has its roots in the economic development in some of those markets and states as well.

Noah Zatzkin: Very helpful. Thank you.

Operator: Our next question comes from Tristan Thomas-Martin from BMO Capital Markets. Please go ahead, your line is open.

Tristan Thomas-Martin: Good morning. I’m just wondering, can you provide a breakdown of how much of your channel inventory is model year ‘24s versus ‘23s? And then I was also kind of wondering what promotional levers you have kind of for the rest of the year if you do need to provide a little juice to hit your inventory decline targets? Thanks.

Jochen Zeitz: So as you have probably seen, we are not promoting our ‘23 model year with the exception of our 399 promotion, which is basically something we’ve had in market for quite some time. And so there are no more promotions. The reason for that is because there are minimal levels of inventories of ‘23s in the market that some dealers actually want to have, bringing customers into their dealership. But we stopped promoting the model year ‘23 for that reason. We are pretty much the only company out there that does not promote ‘24s. I’m sure you’ve noticed that as well. We’re not going to comment on what’s going to happen in the second-half. We’re obviously watching things carefully, but at this point there’s no promotions active for model year ‘24.

Tristan Thomas-Martin: Okay, and then if I could just kind of sneak one in there. The average age chart you posted, is that in line with where you want it to be? And kind of, we look at a couple of years, how do you think that’s going to trend? Thanks.

Jochen Zeitz: I think, yes, as an average, I think that’s quite healthy considering that, as we’ve always said, or I’ve always said, you kind of age into the brand, right? When I started riding at ‘16 or ‘18, I was dreaming of owning a Harley-Davidson, but I couldn’t afford it. And so it comes later in life. Even if the profile in the U.S. might be a little bit different, and you come in a little bit earlier in the U.S. market, but the consistency I think is fine. We’re happy with that based on the data we have that makes us even younger than some other brands in the market, established brands in the market. And the fact that the average income has gone up is also positive. That said, 35 and younger, that’s 30% of our loan origination volume, that’s considerable 35 and younger.

And 75% of our customers are under 54. So that is not the issue from our perspective. We always want to trend Yamaha, but you also have to recognize we’re a premium motorcycle manufacturer with the highest MSRP in the market. And obviously that has also an effect in terms of the face affordability and what someone can afford at what life stage. And that’s what automatically leads you to a higher average age, also considering that our bikes are big bikes, 601 plus cc, so this is not something you’ll necessarily ride when you’re 18 if you can afford it. So I think the consistency in itself, and if I expanded that data beyond 10-years it would actually that curve would stay pretty flat even well beyond the 10-year horizon you know I think it’s an important information for the market that we thought we would share with you.

Tristan Thomas-Martin: Got it, thank you.

Operator: Our last question today will come from Fred Wightman from Wolfe Research. Please go ahead. Your line is open.

Frederick Wightman: Hey, guys. Good morning. I’m wondering if the updated operating margin guidance if that is really just reflecting the deleverage from a production and a fixed cost absorption perspective or if you’re actually earmarking or planning for some incremental dealer support costs. I know you’ve given some specific numbers earlier in the year for dealer support for noncurrent, but I’m wondering if the plan is that the updated margins could include some incremental promo from here, too.

Jonathan Root: Yes. Okay. So Fred, I’ll take that one. And I think — so it’s a great question. Thank you for the question. As you go through and you look at the impact from an OI margin perspective, it is primarily due to the impacts of leverage. So as we think about where we are from an overall production perspective, as we talked about, we did make sure that we adjusted guidance for where we’re going. We are also being extremely thoughtful in overall inventory levels that we’re running. And so we’re working hard to make sure that we’re actually kind of moving through company inventory in a way that makes sense, thinking about where dealer inventory sits, ensuring that our dealers are well positioned to take advantage of retail, but we want to make sure that we are very thoughtful in the levels of inventory they have in light of Fed base rates.

And so as you kind of take that all the way back to sort of the direct answer to your question. It really is production volume, the impact from leverage that really drives our OI performance. Again, as you heard us touch on too, we actually feel very, very confident in our long-term OI margin and where we’re going. And so you saw our commitment to that from a long-term standpoint, too.

Frederick Wightman: Perfect. Thank you.

Jonathan Root: You’re welcome. Thank you.

Operator: There are no further questions at this time. This concludes today’s conference call. Thank you all for joining. You may now disconnect.