Thank you for standing by and welcome to the Harley-Davidson 2023 Third 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 Shawn Collins. Thank you. Please go ahead.

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 business 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 our latest filings with the SEC. With that, joining me this morning for the first part of the call are Harley-Davidson Chief Executive Officer, Jochen Zeitz; also, Chief Financial Officer, Jonathan Root; and LiveWire CEO, Karim Donnez. In addition, for the Q&A portion of today’s call, Harley-Davidson Chief Commercial Officer, Edel O'Sullivan will be joining us, as she usually does. With that, let me turn it over to our CEO, Jochen Zeitz. Jochen?

Thank you, Shawn, and good morning, everyone. Thank you for joining us today for Harley-Davidson and LiveWire's Q3 results. I will start with an overview of the HDMC business for the quarter. Karim will then provide commentary on LiveWire, and Jonathan will run out the financials for HDI including HDFS before we go into questions. As we closed out the third quarter of '23, it is clear that, the macroeconomic backdrop has been a challenge for our customers globally and in turn for our business with both inflationary pressures creating affordability challenges and high interest rates contributing to slower upgrade pipeline. We have continued to work through the effects of the unplanned production suspension in June and July, which impacted Q3 by delaying the availability of some of our high-demand products, as well as altering our inventory mix, especially in North America. Given this complex environment, we continue to focus on the execution of our five-year strategic plan. Results for the quarter reflect a revenue decline of 9% at HDMC, partially offset by revenue growth of 15% at HDFS, contributing to an overall revenue decline of 6% for the quarter. This performance was driven by a 20% decline in wholesales due to the production suspension announced in late Q2, food and dealer inventory management, and market conditions in line with our latest guidance. This was partially offset by both higher pricing and mix. Q3 year-to-date, revenue for HDMC is up 2.1% despite the challenging conditions of the year. I want to provide a few more specifics behind these figures, taking into consideration both our hardwire strategy as well as the realities of our sector right now. Firstly, our hardwire strategy prioritizes our stronghold categories of touring, softail, Trike, and CVO. The premium segment has been disproportionately impacted this year as…

Thank you, Jochen. Good morning, everyone. Q3 saw many important developments for LiveWire as we continue to advance our product portfolio and build out our commercial footprint. Most importantly, we started production of the Del Mar at the Harley Davidson factory in North Pennsylvania. This is an important milestone for LiveWire. After a multi-year investment in the S2 platform and the in-house development of the LiveWire battery pack, motor, power electronics, and software. We believe these investments have given us an industry-leading technology and the capability to rapidly adapt and advance the S2 platform while reducing LiveWire's dependency on third-party suppliers. Our early customers have now started to receive their Del Mar and the bikes are on the road in the US. Those riders that have experienced Del Mar are impressed by how the bike delivers on the LiveWire promise with outstanding specs and the more accessible price parts. With production now ramping up, we expect to see increasing volumes in Q4 as we get more bikes to more customers. We recently announced European pricing for the Del Mar confirmed delivery dates in Q1 2024 and open reservations. Two weeks ago, we hosted media and influencers from across the European market at a Del Mar press event in Barcelona, building early momentum for the spring riding season. Our development teams are working hard to leverage the existing basic and LiveWire platforms to expand the Group's portfolio and with more options to more riders. As we look to the end of the fiscal year, our cash investments are inline with our plan. We also expect to meet our most recent guidance based on demand and current daily production outputs. Thank you. And now I will hand it over to Jonathan.

Thank you, Karim, and good morning, everyone. The third quarter of 2023 is the fourth time under our new reporting structure with the three-business segment of HDMC, HDFS, and LiveWire. In Q3, global wholesale shipments decreased by 20% as Jochen referenced earlier, due to the production suspension announced in late Q2, prudent dealer inventory management, and market conditions inline with our latest guidance. In addition, we comped a very strong growth quarter that was up 19% in 2022. From a Q3 revenue standpoint, improved global pricing and our continued focus on core motorcycle mix of touring and cruiser motorcycles, were able to partially offset the unit declines. This enabled us to turn in a consistent margin performance on a year-to-date basis. Turning to our financial results in the third quarter, total consolidated HDI revenue of $1.5 billion, was down 6% compared to last year. The breakdown was: at HDMC, revenue declined by 9%. At HDFS, revenue grew by 15%. And at LiveWire, revenue declined by 45%. Total consolidated HDI operating income was $209 million, which was $129 million lower than the prior year. The breakdown was: At HDMC, operating income of $175 million was 37% lower than the prior year. At HDFS, operating income of $59 million declined by 27% on a year-over-year basis. And at LiveWire, an operating loss of $25 million was inline with our expectations. Third quarter earnings per share of $1.38 is down 22% as a result of the factors noted. As we look at our year-to-date results, total consolidated HDI revenue of $4.8 billion was up 4% compared to the same period last year. The breakdown of this was: At HDMC, revenue increased by 2%. At HDFS, revenue grew by 17%. And at LiveWire, revenue declined by 39%. Total consolidated HDI operating income was $800…

[Operator Instructions]. Your first question comes from Craig Kennison from Baird. Please go ahead.

Hi, good morning. Thanks for taking my question. Between retail sales and your HDFS portfolio, you have very good insight into the areas of stress the consumer is facing today. I'm just wondering how you would describe the U.S. consumer today at various income levels and credit tiers, and then what the key pages of your recession playbook might be if we indeed enter a recession in ‘24? Edel O’Sullivan: Good morning. Thank you for your question. I think we see some of the elements that you are describing around consumer health show up in a couple of different metrics. We certainly in the first place see a lot of customers sitting on the sidelines, essentially just putting this level of a discretionary purchase to the side in 2023, which obviously for us, the business that is very much dependent upon an upgrade cycle of certain regularity is quite a meaningful impact. That I think is the first factor. We have understanding of that through market research of just customers sort of putting a purchase of this nature out of their mind in a year like 2023. Secondly, you see a lot of customers, maybe even those with high credit worthiness, looking at the level of the rates and saying that having a certain amount of rate shock and saying, we are not going to pay those level of rates based also on many years and many decades of lower rates. So that is the second place where it shows up. And then the third level is potentially for our more credit challenged customers or customers at a different income level, potentially a little bit lower, just looking at the monthly payment that results, particularly when you consider a trade-in that might be worth a little bit less, given what…

Thank you. And before Jonathan takes on, just in terms of recession playbook, obviously, we are going to take a hard look at OPEX and cost productivity. I think those are two areas where we have room for improvement given the developments in the market. And obviously, we know that in the last couple of years, cost productivity due to the inflationary pressures we've seen has declined. And that's something we are taking a very hard look in addition to OPEX in order to be prepared for no matter what comes our way.

Okay, thanks Jochen. And I'll just add a couple of points. I think Edel covered this really nicely, but I think with where we are in consumer health, we are seeing a more stressed consumer. So, as we reach out to the consumer from an HDFS perspective, they are working a little harder to balance payments across their portfolio than where they were. Certainly, when you look at the segments, there's more tension in subprime than there is in prime, across the HDFS business for a number of years, we've been reducing our exposure to the subprime side, so the portfolio has less subprime consumers in it than it, than it has, versus the last few years. To provide a little bit of color in terms of where we are in delinquency, we're certainly seeing delinquency up a little bit versus the same period prior year. This is also demonstrated and disclosed on our page 13, where we walk through what we're seeing from a credit loss standpoint as that kind of moves up. And then with that, we've taken some changes in the provision to make sure that we are covered from a future perspective. And then just touching a little bit further on recession playbook, I think Jochen hit on a couple of really good thoughts, right? Making sure that we're looking at the OpEx side of our business to ensure that we're bringing out costs where we can, we're not stopping there. We are continuing to go a little further and make sure that we are thinking about the cost of goods sold side and really diving in there, to ensure that we can hit targets. And then the last piece I think is from a recession playbook perspective, when we look at HDFS and think about…

Your next question comes from the line of Robby Ohmes from Bank of America. Please go ahead.

Hey, good morning. Thanks for taking my question. I was hoping, Jochen and everyone could, maybe give some thoughts on the dealer inventory levels and are they still out of balance? And are you, is there a lot of work to do to get them more in balance in terms of, you know, more trikes and less sportsters and things like that? And, what would be the timing of getting the dealers in the position you would want them to be in from the inventory mix standpoint? And related to that, how should we think about, supporting dealer promotions going forward and also maybe supporting HDFS promotions as well is, should we think about that for the fourth quarter, as an impact on gross margin and any thoughts on how that might spill into the first half of next year? Edel O’Sullivan: Thank you, Robby, for your question. Let me touch upon the point around inventory first. So certainly, we have been working throughout the course of Q3 to ensure that we are getting to the right level and the right mix of inventory as you appropriately note in the channel. It is certainly no secret that as we have gone through some of the supply disruption that Jochen referenced, which has shown up in, in both our supply chain as well as in overall the timing of the units that are available in the dealer, that that has led to some impact upon our ability to retail within the quarter. That is either, as I said, a combination of timing of when the units arrive or the mix of units that we have in the channel. Certainly, there are, dealers that are concerned about the level of inventory, given particularly what floor plan costs are today. I think you…

That’s very helpful. Thank you.

Your next question comes from the line of Joseph Altobello from Raymond James. Please go ahead.

Thanks. Good morning. Just want to follow-up on that last commentary regarding dealer inventory. You mentioned that they are elevated versus '21 and '22. And if my math is right, I have you guys at about 15 weeks on hand. I think you ended last year around 10 weeks. So just so I am clear, it sounds like you are comfortable at that 15-week level overall, or do you think that number comes have to come down a little bit next year, somewhere between that 10-week and 15-week number?

We are, Joseph, comfortable with that number at this point. Obviously, we will have to see how the fourth quarter unfolds. But, all the effects that Edel has mentioned, play into this. And therefore, from today's perspective, we feel that the inventory level is okay.

Okay. Thank you.

Your next question comes from the line of James Hardiman from Citi. Please go ahead.

Good morning. Thanks for taking my call. So, I was hoping maybe, we could bridge the gap between sort of where we are from a retail perspective and the guidance that I think we're down about 9% year-to-date which I've got to think is worse than where you previously thought it would be. And yet the HDMC guidance is still for flat to up 3%. So obviously pricing seems to be playing a role. You got a big benefit in the third quarter, but maybe help us bridge that gap for the year, and really more specifically, since you've already reported the first three quarters for the fourth quarter, I get to about flattish revenues implied for HDMC in the fourth quarter. I guess, how do you get there? What do assuming for retail, ASP shipments, et cetera?

Yes, thanks James. I think, look, we are not providing a retail guidance. And from a wholesale perspective, I think, you've done the math right. What you should from a retail perspective bear in mind, and we've elaborated on that during the script is that actually more than 50% of the retail decline is attributed to the retirement of the sports store, right? So that has a significant effect and that will continue all the way until the sports is retired out, which is more or less at the end of the second quarter. And that's in line with our strategy. So, bear that in mind when you, when you look at retails and retail declines.

Yes, and I think the only piece that I would add on the -- as we think about the business and it's demonstrated in a year-to-date basis is just the strength of what we have seen from a mix and a pricing perspective. So obviously, I know there's often a focus out there in terms of unit units, units, and as we look at how we're running the business, we are certainly working to make sure that we're maintaining price advantage wherever we can.

That's helpful. I'll hop in the queue -- back in the queue. Thanks guys.

I think, James, as a little bit of additional context, when we compare things right often there's a reference made to 2019, and besides the fact that it's a completely different environment with many factors different today versus 2019, including obviously interest rates and consumer sentiment. Our HDMC profitability went from 9.1% to 17.4%, an 8.3% increase, percentage point increase. So that's substantial, and I think, it is a testament even in this current environment that we are in -- that the strategy is working and the profitability is there, and that's on a year-to-date basis and but also applies to the third quarter where we've seen an increase from 4.4% IO to 13.5% in comparison. So please bear that in mind that's a 9.1% increase in operating income percentage point. So, I think that's also the context, as Jonathan mentioned, you guys are focusing a lot on unit sales and everything else. I think profitability is something not to be disregarded.

Your next question comes from the line of Tristan Thomas Martin from BMO capital markets. Please go ahead.

I just wanted to circle back to promos for a second. During the quarter, I think you're running 399 with zero down, and then post the quarter you switch to 199 to zero down. What has the consumer response been to the lower rates and is that kind of the level we should expect from Harlan moving forward? Thank you. Edel O’Sullivan : Thank you for the question, Tristan. So, as we mentioned, we are -- we have several different potential challenges to consumer behavior and different objectives strategically around their inventory, which is how we have designed our promotional activity. We have tried and experimented with a couple of different tools to make sure that we are addressing several of those channels, both at the top and the bottom of the funnel. And let me start by saying that many of these promotional efforts are also in many ways traffic drivers first and foremost, we want to make sure, again, in an environment work, the consumer is potentially not focused on a discretionary purchase of this size that we are back in their consideration set. So that is one very important component. Even the actual reach or applicability of the promotion. We have found that the low APR has been well received by our dealers and by our consumers also at this time of year, you usually see consumers that are looking for, that may be a little bit higher credit worthiness and are looking for really a good offer. And that's where we're targeting our promotions. But first and foremost, our efforts are really around the balance of driving traffic, driving awareness, making sure that we're back in the consideration that just as much as it is about closing deals for the consumer at the level of the dealership.

Okay, thank you.

Your next question comes from the line of Noah Zatzkin from KeyBanc Capital Markets. Please go ahead.

Hi, thanks for taking my question. I'm just wondering if you could provide some color or help quantify the impact of the production suspension on 3Q shipments and how you think about the retail impact during the quarter there. Do you expect resumption of shipments to be a retail tailwind in the fourth quarter?

Well, if you look, as we mentioned in our speech that, you know, shipments, have resumed, but they actually came in later than we had hoped for in the third quarter. So, some of our most desirable products, came in later in the third quarter. And that certainly has had some impact. To quantify the impact on retail is quite difficult. So, I'll refrain from that, but the interruption has certainly messed up our mix a little bit and the shipment of our most desirable units and that impact we've certainly seen play out. Now, how much you can, how much of that you can pick up in the fourth quarter remains to be seen, but that's obviously what we're trying, trying to achieve.

Very helpful. Maybe just one more, and I know you're not guiding to 2024, but as it relates to HDFS, I guess, how are you thinking about kind of a baseline for expected credit losses next year given higher rates? Thanks.

Yep, you're welcome. So, good question. We're actually not talking about 2024 or 2024 guidance at this point. We want to make sure that we close out the year and have confidence in what we are communicating further out. So, we'll probably hold on that. I think the important point for us is as we look at what you've, what we've displayed, again within the presentation today on what we're seeing in terms of, realized retail credit losses, certainly those have accelerated. We think that we're starting to comp a period that's a little bit easier from a comp perspective than where we were in the first half of the year. So, the kind of the trend that we're on, is in the right direction, but probably not the right severity. So that will start to slow down a little bit as we move into the back quarter or the final quarter of the year. But again, as we look forward to 2024, we're going to save that for a future call with you that's a little bit more informed and a little bit more accurate.

Thank you.

Your next question comes from the line of David MacGregor from Longbow Research. Please go ahead.

Yes. Good morning, everyone. I wanted to ask about LiveWire. And it seems as though you are still targeting that 600 bikes at the low end of the range, which would imply a pretty substantial inflection in shipments here in fourth quarter. I guess, how confident are you in that 600 unit, sort of target. Can you talk about what percentage of these bikes may be pre-sold at this point? Have you adjusted your plan price point on the Del Mar to account for maybe some of the affordability issues that were discussed earlier in the call? And I think importantly, at what rate does the operating loss respond to the ramp and unit shipments?

Good morning, David. Thanks for the question. Our level of confidence is where it should be to reaffirm guidance. We have enough demand to fulfill the guidance in terms of number of units. We are back in production ramping up right now as we speak. So, we feel pretty confident that between demand that we have with pre-orders along with the capacity available at York, that we can fulfill that number. So that's the first part of the question. The second, we stick to the pricing that was communicated earlier.

Okay. And are you able to speak to, at what rate the operating loss responds to the ramp in unit shipments?

The operating loss is inline with the investments that were planned for the year. So, at this stage, it is exactly the rate that we are supposed to have.

I guess I am just trying to get a sense of going forward with that operating leverage, that volume leverage might look like in '24 and '25 as we ramp?

I think it would give you the same response that I gave, which is we don't comment on '24 '25 on this call.

Your next question comes from the line of Brandon Rollé from D.A. Davidson Please go ahead. Brandon Rollé: Good morning. Thank you for taking my question. Earlier in the call, you touched on the dealer form you hosted in early October. Would you be able to touch on a few of the topics you discussed there? Feedback we received from dealers was overwhelmingly positive, especially around new products, but also some of the initiatives you are taking for 2024. Edel O’Sullivan: Thank you, Brandon. That's good to hear. We thought it was an excellent session as well. The main objective really was around the business planning opportunity with our dealers. Certainly, there was value to all of us being together again, as a broader sort of HDMC and dealer body. Our main objective is to make sure that we are aligned going into 2024 on what we need to do to make sure that, we have a very strong year. We believe our network as Jochen referenced in his commentary is really a differentiated asset for us in terms of its reach, its strengths, its exclusivity. So, the more that we can align and ensure that we are going to market together on some critical initiatives, the better. Our main agenda topics, we certainly had a section of this around product, which we don't comment on our future product initiatives, but obviously a very important part of the session was making sure that, our dealers were aware of some of what is planned for 2024, as they think about their own operations. And then we did a more of a broad set of -- we covered a broad set of topics around business alignment and some of our key initiatives, membership, and loyalty or apparel business, our broader omnichannel initiative, how we are thinking about profitability and growth. And again, very, very heavy discussion or a big component of the agenda around ensuring that we are aligned in our go-to-market and in our marketing investments in particular, again, leveraging the strength of that network and the investments that they bring to bear in the engagement with consumers. So, we felt it was an incredibly valuable session. It was a wonderful opportunity also to just energize around what has been in many ways a challenging year. So, it was -- I think we'll bear fruit as we go into 2024 in a much more aligned and energized network.

Our next question comes from the line of James Hardiman from Citi. Please go ahead.

Thanks for taking my follow-up. So back to sort of the inventory conversation. I think I get why inventories would be up versus ‘21 and ‘22. Those were pretty depleted levels, but I guess what I still struggle with here inventories are versus ‘19, they're down less than retail is, right? And so, days on hand, weeks on hand at least by my math, are up fairly meaningfully versus 2019. And you can, when you first came in it seemed like the message was pretty loud and clear that you guys thought that inventories were way too high coming out of 2019. So, help me sort of square those two things. I mean, it just -- it feels like so much of the effort in the first couple years went towards leaning out the channel and as we sit here today, we're sort of worse than we were back then -- at least on a week-on-hand basis.

Yes, I let the Edel comment here as well versus 2019, but I don't think you can compare ‘21 and ‘22 to what we are seeing now and for the reasons that I've mentioned in earlier on -- it's a very different environment. Demand is more selective. We've had a production interruption that and in order to get the right mix to the dealers, we need to structurally have a higher inventory if demand is more selective on product as well. And we still end up and I'll hand it over to Edel here, significantly below 2019 levels. And I know that you're -- the way you're doing the math is a little bit different to ours in terms of reach of the inventory, but from everything we've seen and everything we are hearing, we feel that we're in a good sport here. Edel O’Sullivan: Yes, James. I think that the comparison point of 2019 is important. There are -- as Jochen mentioned, a couple of differences in terms of where we are now more broadly in the business cycle than in 2019. So, the first thing that I would say is undoubtedly we have been working throughout the quarter, certainly since the production shutdown, to make sure that we are adjusting our overall inventory levels. And again, it's less about the total units which are still down versus 2019 than it is about the mix of the units in the channel. And that's something that we certainly continue to hold as a very key principle of our overall hardwire strategies to make sure that we have adequate representation. The second element, and it really isn't to be sort of underestimated, is the impact of the delay and the mix of what we were able to produce particularly in the…

And if I may, can I just clarify, I mean to this mixed question and the wind-down of sportster. So, the SKU count versus 2019 is what it sounds like the SKU count is actually down, so that should help bring down inventories, correct. Or am I not thinking about that the right way? Edel O’Sullivan: Yeah, when I refer to mix, I refer to mix both within and across families. So, the balance relatively between, for example, our soft tail family and our trike family versus what we have within the touring family, those are some of the input. Those were, that balance is one that is not exactly or has not been exactly what we would've wanted across Q3. And even within something like our touring family, 55% of our portfolio, there is a relative balance of some of our higher-end, more complex units, our STs, and our specials versus our base world glides, and street glides, all of those individual units given supply disruption and then potentially even the change, in consumer preferences and affordability throughout the year are units that we try to correct. And I should note all of this is in the context of manufacturing realities. Transforming sort of the mix, of a manufacturing facility within the year is not an easy task. So, it is progressive and that's what we have been doing throughout the back half of the year to make sure that we have the right combination of families and then even models within those families, to prepare ourselves and to more closely match where demand is.

Understood. I can appreciate it. It's not an easy task, so I appreciate the color. Thanks guys. Edel O’Sullivan: Thank you.

There are no further questions at this time. This concludes today's conference call. Thank you all for joining and you may now disconnect.