Ladies and gentlemen, thank you for standing by, and welcome to the 2020 Third Quarter Earnings Conference call. All lines are currently in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to hand the conference over to Director of Investor Relations, Shannon Burns. Please go ahead.

Good morning, everyone. You can access the slides supporting this call at investor.harley-davidson.com. Click the Earnings Materials box in the center of the page. 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 our latest earnings release and filings with the SEC. Harley-Davidson disclaims any obligation to update information in this call. Joining me this morning are CEO, Jochen Zeitz; CFO, Gina Goetter; and Chief Commercial Officer, Larry Hund will also be joining us for Q&A. Jochen, let's get started.

Hello, everyone. With most of the year now behind us, I reflect on how we've driven significant progress and delivered many changes that we believe are setting our quote for winning future. We stabilized our business through ongoing COVID-19 impact. We executed across each of the five key elements of the Rewire playbook, and our initial actions aimed at desirability are starting to drive value for our brand, our products and our customers. I'm very pleased with our team's achievements in such a short time and I'm encouraged by early positive signs we're seeing, including posting solid net income in Q3. We're building a strong foundation that will support the work ahead for the rest of the year, including the ongoing development of the Hardwire strategic plan. As COVID-19 continues to surge and strain the economy, we will not relax our response efforts. We continue to implement our robust protocol to keep workers safe in our factories, whilst the wider team continues to work from home. We are carefully managing cash, and our cost management efforts are expected to deliver $250 million in cash savings this year. Share repurchase remain suspended, and today we announced the Q4 dividend of $0.02 per share, which is in line with Q2 and Q3. We maintain a strong liquidity position with over $3.5 billion in cash and equivalents at the end of the third quarter, and $4.7 billion in liquidity. Earlier this year, I initiated the Rewire to overhaul Harley-Davidson. We've already addressed many of the areas I identified as needing significant changes. After six months, the team has significantly reduced complexity, narrowed focus on only those things that make a difference, made progress across all five key elements of the Rewire playbook. And we've reset our cultural priorities as well as our leadership…

Thank you, Jochen, and hello, everyone. I've been CFO for about one month, and I look forward to meeting and talking with you all over the coming weeks. Overall, we delivered solid financial performance within the quarter as we continue to execute against the Rewire playbook. Consolidated net income was up 38.9%, and earnings per share was $0.78, or up 41.8% over a year ago. The motorcycles segment operating income in the quarter was slightly down year-over-year, as shipment decline and restructuring expense were offset by cost reductions across manufacturing and SG&A. Financial Services operating income was up 25%, driven by a lower provision for credit losses and reduced operating expenses. As we continue to work through the Rewire playbook, we incurred restructuring charges of $44 million during the quarter, bringing year-to-date restructuring charges to $86 million. We continue to expect restructuring cost to be $169 million. As you heard from Jochen, the execution of the Rewire is going as planned, and we continue to expect to deliver $115 million of annual ongoing savings beginning in 2021. Global retail sales of new Harley-Davidson motorcycles in Q3 were down 8.1% versus last year. This retail performance was primarily driven by a 10.3% decline in the U.S., due in part to the timing shift of our new model year launch from Q3 to Q1. Last year, new model year bikes were in the U.S. market in August. Given this timing shift, we were encouraged by solid retail performance through most of the quarter, with year-over-year sales rate declines accelerating in September, but in line with our expectations. We expect to see global sales declines continue throughout Q4, as we adjust to the new model year timing, and we continue to experience the impact resulting from lower inventory. U.S. retail sales also continued…

Thank you, Gina. The Rewire is the execution of a playbook that creates a strong foundation for the company, including a new operating model that realigns the organization for performance, reduces costs and sharpens focus on profitable products and markets. The Rewire foundation will be the starting point for the Hardwire. Our forthcoming five-year strategic plan to deliver profitable growth and shareholder value based on building and expanding the desirability of Harley-Davidson. The work we are doing to develop our five-year strategic plan and the positive initial results we are seeing reinforces our belief that a strategy grounded in desirability is the right path forward. As I mentioned last quarter, I would like to share first look at the Hardwire that is coming into focus now. Our strategic plan will be guided by our new vision and mission. Our vision is to build on our legend and lead our industry through innovation, evolution and emotion. Our mission is more than building machines, we stand for the timeless pursuit of adventure, freedom for the soul. Both statements will keep us grounded in our authentic brands, delivering adventure and freedom in only the way Harley-Davidson can. The basis of the Hardwire is Harley-Davidson being the most desirable motorcycle brand in the world, and the company that defines motorcycle culture globally. Desirability will provide the framework for our work and for our success measures. It will be organized around a desirable growth strategy for motorcycles, parts and accessories and general merchandise in priority markets. Desirable customer focus inclusive of distinct products, brand and purchase experiences, desirable operations that are high performance, lean and efficient, desirable impact with emphasis on inclusive stakeholder management and delivering long-term value and the desirable workplace that is diverse, inclusive and build around top talent rooted in a high-performance…

[Operator Instructions] The first question will come from the line of James Hardiman with Wedbush Securities.

Hi, good morning. Thanks for taking my call. Two-part question is the way I'm going to get around that. But maybe talk a little bit about this new distributor model. Help us understand - obviously, I think you've identified some of these markets that's maybe not paying for the home run that you once thought that they would be. But it doesn't sound like you're necessarily giving anything up on the topline by going to a distributor model. What is the impact on margins ultimately? Are you sort of giving back whatever cost savings you might be getting from exiting those markets from a manufacturing perspective? Giving those some cut of revenues to your partners in those markets? Help us understand that a little bit better. And then I guess broadly, do you think the long-term topline potential after you're done with a lot of the cost cuts that are underway here? Is that necessarily less than it once was? Is it similar to it once was? Or is it even maybe greater than it once was? Thank you.

So James, this is Larry. Let me take first part of your question. We don't see a whole lot of impact to margin on the change to distributor models. I mean, these are not, if you look at overall number of units compared to total motorcycle shipments or retail sales for the company are not that large. In a lot of cases, in smaller markets, these are single dealer markets, maybe two dealer markets. So, once again, not a huge impact from that. So, overall, we think that the overall impact probably is not that great.

To your second question, James, well, it depends on what you want to compare to when you say is the long-term topline potential less than it once was. I would need to know what the once was, was. So, we are not giving topline guidance at this point. And I think the refocus that we've done with the Rewire strategy will obviously also impact our Hardwire strategy. The key is not the topline growth, the key is that we want to grow desirably and profitably. So this, as I said, it's really important to bear that in mind. We don't want to grow for the sake of growing, we want to grow profitably. And if we can't grow profitably well, we'll take that at the time that happens. Having said that, we do see a lot of potential. I mentioned parts and accessories, general merchandise, HDFS. And we do see, of course, also potential in our motorcycle business, but focus is key not trying to do everything at once and making sure that what you launch in terms of existing categories and new categories is manageable with a powerful go-to-market process. So we believe growth comes through focus as well. And the Rewire has reset our operating model and it was not a, as I mentioned, just an initiative to reduce costs, but to really make us an efficient, effective and high-performance organization. So, it was done very carefully. But without compromise really setting us up for a faster, more focused, less complex organization.

Our next question will come from the line of Gerrick Johnson with BMO Capital Markets.

Hey, good morning. So, when we walk into some dealerships, they kind of look like ghost towns. And they'll tell us, they're not getting any bikes until February. So clearly, you've shipped about 25,000 bikes in the U.S. So, how are you allocating those motorcycles to your dealership base?

So Gerrick, we are looking at dealer supply, right, and we are measuring dealer supply. And we are filling based on days forward sales for dealers, so the dealers who are call it shortest time supply relative to our projected forward sales over the next couple of months, get supplied first, and then we continue to work, down the list like that. I would say, at the end of the quarter, we were pretty close to a couple of months forward sales at our dealers. So we actually, felt decent about our strategy on that, we were probably a little like, at points as we went through the quarter.

Our next question will come from the line of Brandon Rolle with Northcoast Research.

Good morning. Congrats on the strong earnings performance. I guess, my question was, kind of also on the dealer base. Could you kind of break out the impact of dealers, possibly going away or being eliminated as you create a stronger, more profitable base? And I guess the break that out from a shipment and retail perspective, if you can?

So, we probably won't give that kind of detail on this. What I will say is that, we have closed about 61 full line dealerships, I think, as it was reported in the comments, about 4% of our total. And those are call it closures combined with our managing inventory on a much tighter in line with supply and demand, are driving some real positive impacts for our dealer network. We're seeing improved pricing on used motorcycles. We're seeing improved new motorcycles selling, right around MSRP. We're seeing a tightening of the gap between pricing for new and used motorcycles. And I would say that, despite lower sales, we have seen improvement in dealer profits. And in fact, many dealers having very strong profits throughout the third quarter. So, dealers are certainly seeing the benefit of all these actions.

Great to hear. Thanks.

Our next question will come from the line of Greg Badishkanian of Wolfe Research.

Hey, guys, good morning. It's actually Fred Wightman on for Greg. You in your prepared remarks mentioned plans to defend and grow your leading position now when you were talking about Hardwire. But the U.S. share was down over 800 basis points again in the quarter. So, I understand that that's going to be volatile. But can you sort of help us understand what's your expectations for that metric as we move into the beginning part of next year and the model year reset takes place?

Yes. Thank you, Fred. Look, we've always said that market share right now doesn't really matter, simply because we have to focus not on volume, but on desirability. And we will not devalue our brand by over supplying the market resulting in price promotion and discounting activities, which have seized this quarter and also in the previous quarter. And we will not pursue volume growth at the expense of the right fundamentals for our business, and that is very much the case for this year. So, all I can say right now is we are focused on taking the needed actions to ensure that we are the most desirable motorcycle brand in the world, and as part of that we are managing inventory in line and/or rather little short of demand. And as Larry just said, these actions are driving the intended results, increase demand and increase pricing for used motorcycles. Dealers are selling new bike at or very close to MSRP. Higher dealer profitability, and I think that's what really counts. And while some of our competitors are rather price aggressive, it's not something that we want to buy into. And hence, there was quite inventory glut in the system that we managed to now work through the system due to COVID-19 and our restricted inventory policy, and that is showing the right results. What that will mean in terms of market share going forward, we will comment on once the Hardwire strategy is launched. But as we said, this is not just about market share, this is about a desirable market share. And for that, we had to take the actions we had to take. That will be done by the end of the year and from there we can rebuild. And certainly our goal is to expand market share desirably in the future, as well as part of the Hardwire strategy profitably, though.

Our next question will come from the line of Shawn Collins with Citigroup.

Yes, great. Thank you. Hi, Jochen, Gina and Shannon, good morning. My question is on manufacturing in the U.S. And if you are possibly seeing any supply chain disruptions or complexities. I think Polaris cited some intermittent supply chain disruptions this morning at its [Indiscernible] segment. So if you might just talk about that that appreciate it. Thank you.

Yes. Shawn, supply chain disruptions we don't see right now. Obviously, we had disruption when our factories were closed and as part of the restart. Has it become much more complex? Absolutely. But I think the team has done an extraordinary job to navigate through COVID-19. We have the right safety security protocols in place to deal with COVID-19. And we haven't seen any substantial shutdowns since. So supply chain, there's always one or the other smaller disruption, but nothing significant at this point in time.

That's great, that's helpful. Thank you very much for the color and the insight.

Our next question will come from the line of Adam Jonas with Morgan Stanley.

Hey, Jochen. And congrats, Gina, welcome to the team. I hope you don't think that stock price up 15%, every earnings result is normal. It's nice.

This isn't normal?

I wouldn't extrapolate. We'll call it a Gina effect, okay. Just one question, Jochen in your closing remarks, you kind of piqued my interest when you talked about beyond - after your comments on adventure touring, you said beyond these segments, I'll have to check the transcript. But you said we want to continue to look at attractive and strategic segments, and we're exploring them with rigor. I think, I mean, I'm probably crazy, but I keep - I can't help but think about three wheel and four wheel on and off-road adventure vehicles, both in ICE powertrains and also BEV powertrains. Could this categorically be included in one of those potentially unexploited opportunities for Harley-Davidson?

Well, thanks, Adam. I would say it cannot be categorically excluded, but I don't want to. So, look, at this point, we are looking at every opportunity there is. The key thing is focusing on the things that we think have the most potential for success. And that means clear focus on our core segments expansion and that's the majority of our business. But that doesn't exclude certainly three wheels, simply because our Trike business has been quite successful. We see potential in that. And I'm not going to rule out four wheels, but you shouldn't take that as an indication that we will get into four wheels. But, once you defend or while you develop a new strategy, I think everything has to be at the table. And there are certainly no categories that we don't think could potentially be an opportunity either in the short, mid or long-term. I know that's a little cryptic.

No, I understand.

But, I'll keep it at that. We are categorically not excluding anything. But that doesn't mean that we will certainly not jump into everything that offers an opportunity. We want to stay very focused and any adventure we are taking will need to be very thought through and chances of success have to be very high. And we need to see a competitive advantage that we bring to that new category that we might enter with the Harley-Davidson brand and our product.

The next question will come from the line of Felicia Hendrix with Barclays.

Hi, good morning. Thank you so much. Jochen, as you look into the future and maybe not so far out, let's call it the mid-term, what do you think is the right normalized run-rate for worldwide shipments over time? Do you see the company getting back to 200,000 plus units a year? And then also, when do you expect the motor company to get back to a regular introduction rate of new models?

Well, regular introduction of new models will start next year. What has just changed is that the change of model year to model year is no longer happening in August, it's now happening at the beginning of the New Year. So that's a onetime effect. From here on, we will continue to introduce new models throughout the year, but with the model year change over actually happening in the calendar year, the changeover supposed to happen rather than the year before. Look, we're not commenting on run-rate and units normalized, and I don't want to really give any guidance for next year at this point in time. I think we've done what we need to do in terms of making sure that the base of our business is desirable. And that is a good platform to grow. But I need to leave it at that today.

Okay. Just to clarify, in the first part, I probably should have been more clear. In terms of more of a - I guess, the cadence of the introduction. I know that model years changing just in terms of the number of new models a year. I mean we've already kind of more of a gradual ramp, or will hit sort of next year right away?

Well, it's certainly the carryover bikes and the majority of new bikes will be launched in the first quarter. But we will have launches also in one or the other quarter, following the new model year introduction. So not every new product will come in the first quarter or future years. I don't think that makes much sense. You want to make sure that there's enough new product out there in the following quarters to create desirability and demand. So the majority, yes, first quarter, but thereafter there will be either new categories that we're or segments that we're venturing into or new products, in particular in our core segments.

Our next question will come from the line of Jaime Katz with Morningstar.

Hi, good morning. Can you just delineate what the 39 markets that you're exiting represents as a percentage of sales and profits, so we can get an idea of what the impact of that might be? And then just a clarification, I think the language that you used for average selling prices, you said they were flat year-over-year, but I think maybe that stripped out the mix shift of it. So, if I did my math right, I think actually the ASPs were down. Can you just confirm that? Thanks.

So Jaime, I can make the first part of your question. The impact on sales and profits of those markets we are exiting is minimal, probably less than 1% of worldwide unit sales and profit, like I say profit really not particularly meaningful.

Yes. And average selling price hasn't really changed that much. And as Larry mentioned earlier, our MSRP has actually gone up. So there's not a significant shift within the models and within the segments. But obviously, there's some impact due to the decline in the touring segment. But overall, our segments are holding up well according to our plans for this year.

Thank you.

The next question will come from the line of Craig Kennison with Baird?

Hey, good morning. Thanks for taking my question. And Gina, congratulations. Most of my questions have been asked, so I'll shift to a bigger picture question. California has proposed a ban on gas cars by 2035. Obviously, motorcycles are not cars, but it's not hard to connect the dots. So to what extent are you preparing Harley-Davidson for any similar action against gas-powered motorcycles.

Yes, that's a good question and that's why we have launched LiveWire. And we believe electric needs to play an important role in the future of Harley-Davidson. It's still an emerging category. So, sales volume and volumes are relative, but from what I can see through August, we actually believe that LiveWire is the best-selling electric on highway or dual electric motorcycle in the U.S., actually selling more than double the next highest electric motorcycles. So, that means we are leading the way. We have an extraordinary product. And that is the starting point to continue to expand in the electric motorcycle segment. So, we believe this is important. We have an important role to play. We are leading in the segment, the LiveWire has just been elected as the best electric motorcycle in 2020 by motorcycle news. It's an extraordinary product and it's the starting point to more. So we have fully committed to electric not just because of California, but because we believe it can be an important segment, and must be an important segment in the long-term future of the company. And it's also attracting new riders and new customers to the brand that might not have considered Harley-Davidson before.

Thank you.

The next question comes from line of Joe Altobello with Raymond James.

Hey. Thanks, good morning, everybody. So, just a quick question on SG&A, obviously down nearly $70 million this quarter, down roughly double that year-to-date. How much of that reduction is sustainable? And is $200 million a quarter, roughly a good run rate as we start to think about 2021? I'm assuming some cost savings that you're experiencing this year are COVID-related, and probably come back next year, but then you've got the restructuring savings ramping up next year as well. So, just trying to get a sense of what a good run rate for SG&A is going forward? Thanks.

So coming back to SG&A, what we've committed to from a restructuring standpoint, so we've said that there's $169 million of restructuring costs, and that equates to $150 million of ongoing savings, and that estimate remains unchanged. So, I wouldn't take this quarter as the runway that I would move throughout, because there's a combination of both kind of the near-term actions that we took to kind of reserve and preserve cash in the quarter. I would anchor to that $150 million of annual ongoing savings.

Okay, that's helpful. Thank you.

The next question comes from the line of David MacGregor with Longbow Research.

Yes. Good morning, everyone. Certainly the long-term plan is very exciting here. But just focusing on the near-term. You had mentioned earlier that market share doesn't matter right now. But I would like to see if you could explore for us that 840 basis point drop in market share, and I realized that's probably good measure. That's the plant inventory retractions. But could you separate out for us just the impact of the inventory retractions from just what the competitive dynamic was in the quarter? Thank you.

So, David, I would say a couple things. One is, there was some growth in the market in certain parts of the market where we don't compete this quarter. So, that certainly had an impact on the market share. The not having the new model year launch certainly had an impact as well. Normally, we see a little bit of a lift when in September after those new bikes are introduced. And then combined with that, I think the impact as we talked about in the prepared comments about tighter inventory management certainly had an impact as well. So, a combination really of those three things I think drove the market share. But as we've said that the trade-off has been stronger pricing of new and used motorcycles, better profitability for our dealers, higher margins for our dealers. So, I think we are really executing our strategy of building desirability for Harley-Davidson motorcycles and the brand.

And to add to what Larry said, no promotional activities. We had no significant promotion in the market in comparison to some of our competitors that have been highly promotional and continued to be highly promotional.

The next question is a follow-up question from Gerrick Johnson with BMO Capital Market.

Hey, sorry. I didn't expect to get back to you so soon. A question for Gina, just in general surprises, what are you most excited about? How your talents can most benefit Harley-Davidson?

Surprises in general, I guess I'm overly - I'm super excited to be here, I'm super excited to be part of this amazing transformation. All of the kind of the actions that Jochen laid out, and the actions that the leadership are taking, I'm very inspired to be part of the journey that they're on. So, I don't know that I have any, any real surprises. But I guess pleasant surprise that there's an organization that has lined up behind this mission and ready to go, which is great.

Thank you.

We have a follow-up question from Adam Jonas with Morgan Stanley.

Forgive me if I missed this, but can you remind us when we should expect to hear the five-year plan, the Hardwire plan next year?

Sure. That's going to be with the announcement of the fourth quarter results in February.

Okay. So it's simultaneous, it's not separate. It's just part of the normal earnings presentation. It's not a separate capital markets day as such?

No, that's correct.

Great. Thanks, Jochen. I Appreciate it.

With that we're showing - actually we just received a follow-up from James Hardiman with Wedbush Securities.

Hey, thanks for taking my follow-up here. So obviously, September was the month where the model year comparison was toughest. Safe to say that if I think about sort of 10% decline domestically and 8% globally, that that was probably worst in September. Just trying to think about how I should frame the fourth quarter, as I think about sort of retail which we're still going to have that difficult comparison from a model year perspective? And then, as I look to next year, I'm not going to ask you anything about guidance, but just maybe help us understand if there's going to be significant fallout from these markets, you're exiting. It doesn't sound like, they represented much in terms of overall shipments or overall retail. But I don't know, is there going to be a material impact from you exiting markets, as I think about shipments in 2021?

So, James what I'll talk about in the third quarter kind of the sequencing of the sales that we went through the quarter, if you will. Sales were pretty solid in the month of July. And then really through the first three weeks of August, then you start lapping those last five weeks of the quarter, where you're lapping the new model year introduction, and that's where we really saw, I think, some decline particularly in the U.S. market, which tends to have a stronger sale of those new products. And then as I said earlier, the impact of these markets we're exiting, lot of small markets, lot of kind of one, two dealer markets. So not a significant fallout next year that we expect on market exits. I think there will be some, but not a meaningful amount.

Perfect. Thank you.

And with that, we show no further audio questions. I will now hand the conference back for closing remarks.

All right. Thanks for joining us today. Everyone, we appreciate your interest in Harley-Davidson. Have a fantastic day. Bye-bye.

This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.