Thank you for standing by, and welcome to the Harley-Davidson 2023 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 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 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’s 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. Good morning, everyone, and thank you for joining us today. Our Q2 results showed progress on the delivery of our Hardwire strategy despite a difficult macro environment and the unexpected production suspension impacting the business. Revenues were down 2% in the second quarter, driven by a revenue decline of 4% at HDMC, which was partially offset by revenue growth of 19% at HDFS. Despite the challenges, we saw global new motorcycle retail growth of 3%, with North America up 1% versus the prior year and solid international growth, especially in APAC, where we delivered a 24% increase in retail sales versus prior year. Before we turn to our delivery against our Hardwire pillars, there are three points I’d like to make about our performance for the quarter. Firstly, we remain focused on growing our most profitable categories versus just growing total units. In addition to the impact of the unplanned production suspension, Q2 total units have been impacted by portfolio choices in line with our strategy, including the shift of our second CVO launch to later in the year and most notably with the sunset of the Sportster in North America. While we intend to continue to participate in the small cruiser segment, leveraging both used and our RevMAX platform, our priority is to grow profitably in our leading segments. And while we expect RevMAX to grow over time as customers become familiar with the new engine, we will continue to make choices consistent with our strategy, namely, defending profit over retail units. Secondly, across our main geographies, we’ve seen clear impacts on customer demand and affordability, with rising interest rates giving push to high-credit customers, in addition to higher monthly payment challenges across the board. We’ve also seen the impact of inflation on discretionary purchases. We…

Thank you, Jochen. Good morning, everyone. I’m happy to be with you to talk about LiveWire. Thanks to the investments already made and the continued support from our shareholders, I believe LiveWire is poised to have a massive impact into the electrification of the industry. As we report on the second quarter of 2023, LiveWire is moving the S2 Del Mar into production and launching the brand in Europe. The Del Mar is the first bike on the S2 platform, with the core EV systems and software developed from the ground up by the LiveWire engineering team. We’re seen strong customer interest in the new design and the advanced technology offered by the bike that we’ve been working on for the past five years. The price point of just above $15,000 makes the LiveWire brand more accessible to a broader segment of riders. We believe anticipation for the Del Mar contributed to lower year-on-year volumes of LiveWire ONE as riders waiting to learn more about our latest entry. We’re happy to report that we’ve been building powertrains in Wisconsin over the past few weeks, and the first bikes have been assembled on Line 3 in North Pennsylvania just this week. We look forward to ramping up production throughout August and getting early customers on the road. Over the next two years, we expect the S2 platform to expand, continuing to build on our momentum. With LiveWire ONE now available in Europe, Del Mar will soon follow. Our retail partners are up and running in our four priority countries following the launch of the brand in the second quarter, with successful events in Paris, Berlin, London and Amsterdam. We look forward to the region becoming a critical piece of the LiveWire growth story. Our investment and associated expenses were in line with our plan for the quarter. We believe the business is currently well financed for the next stages of our development, with $216 million in cash and cash equivalents at the end of the quarter and the option to access $200 million under a nonbinding term sheet with Harley-Davidson. And now, I’ll hand it over to Jonathan.

Thank you, and good morning, everyone. The second quarter of 2023 is the third quarter under our new reporting structure with the three business segments of HDMC, HDFS and LiveWire. In Q2, we experienced the impact of an unplanned production suspension at our U.S. manufacturing operations, where global wholesale shipments decreased by 10% year-over-year. Yet global pricing was able to partially offset unit declines, allowing us to turn in a strong margin performance as unit mix and productivity are key areas of focus. In addition, we continue to invest into building core competencies in our Hardwire pillars. Turning to our financial results in the second quarter. Total consolidated HDI revenue of $1.4 billion was down 2% compared to last year. The components of this were, at HDMC, revenue declined by 4%; at Harley-Davidson Financial Services, revenue grew by 19%; and at LiveWire, revenue declined by 44%. Total consolidated HDI operating income was $221 million, which was $56 million lower than the prior year. The components of this were, at HDMC, operating income of $194 million was 8% lower than the prior year; at Harley-Davidson Financial Services, operating income of $59 million declined by 31% on a year-over-year basis; and at LiveWire, an operating loss of $32 million was in line with our expectations. Second quarter earnings per share of $1.22 compares to $1.46 last year as a result of the factors noted above. As we flip the page to first half results, total consolidated HDI revenue of $3.2 billion was up 9% compared to last year. The components of this were, at HDMC, revenue increased by 8%; at Harley-Davidson Financial Services, revenue grew by 17%; and at LiveWire, revenue declined by 35%. Total consolidated HDI operating income was $591 million, which was $24 million higher than the prior year. The…

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

Hey, good morning. Thanks for taking my question. I imagine there will be plenty of focus on the U.S. market, but I’m curious about the strategy in India, where the demographic story looks much different. Can you frame the market size and opportunity and the economics of your licensing arrangement with Hero?

Yes, Craig, thank you. As you know, we exited India, which was a subsidiary, which was serviced also through a manufacturing facility that we had in India in 2020. And we entered into a license agreement with Hero Moto Company. So that’s the first important point. It’s a license agreement with our partner that essentially provides us license income at the time when those bikes are being shipped into the market with minimum quantities that we’ve agreed per contract. So those bikes will not hit our P&L. And they are also our wholesaler, as distributor for our big bikes, 600cc plus. Now I look at India as a long-term opportunity. There is huge – it’s a huge market overall, but the premium segment that Harley-Davidson is operating in is relatively small, as we’ve seen based on our own experience in the past. That said, there is a premium segment that we are now entering into with our partner, Hero. And that is anywhere around – in terms of price points, certainly a lot lower than our traditional Harley-Davidson price points, but premium in the Indian market. We believe that this is a great entry for 440, which was – is competitively priced by Hero and has really led to a lot of enthusiasm in the market, if you look at – and search it. There’s lots of reporting and interest, and our partner overall is extremely happy with the results achieved so far. So – and to date, there has really only been one competitor in the market that has essentially had a monopoly, and that we are trying to break into, providing an alternative with a strong international brand name, the strongest brand name there is in the world of motorcycling, Harley-Davidson. But coupled with the distribution network that complements our Harley-Davidson distribution and dealerships, and therefore, should provide a pretty broad opportunity in terms of units that we’re able to sell. I’ll have to leave it at that, because it’s really Hero that’s communicating in India. I’m sure they will be reporting on the preorders that we’ve received so far since we launched, not even four weeks ago. But overall, very pleased with the reception since the launch that I also participated in while being in India.

Our next question comes from Robby Ohmes from Bank of America. Please go ahead. Your line is open.

Hey, good morning. My question is going to be on the U.S. trends. So I was hoping we could get maybe some color on retail trends through the second quarter and into July. And then also just on the dealer inventory levels, how are U.S. dealer inventory levels versus your expectations right now? And maybe also global dealer inventory levels? And maybe the – sorry, I’m throwing three in here. And then any color we can get on just the back half motorcycle revenue declines, what the U.S. shipment cadence should be that we expect, maybe for the back half? And does the timing of the new CVO shipments have a meaningful impact on what shipments might look like in the U.S. in the back half?

Yes. Let me just start with the question about what we are seeing in July. As in Q1, I would really prefer not to comment on the next quarter. We’re not even a full month in. And as we know, there are swings from month to month. So I’ll keep it now and in the future and just comment on the past quarter, rather than commenting on trends early on in the quarter. And then Edel, do you want to take the rest? Edel O’Sullivan: Yes, of course. Thank you, Robby, for the question. Let me start by the trends that we saw in Q2, specifically in North America retail. As Jochen alluded to in his commentary, this continues to be a year that is challenging for customers in terms of inflation, rates, the overall affordability, and that certainly was a prevalent trend in Q2 as well. We also had the impact of the production suspension that – even though it was late in the quarter, there were specific bikes that we were expecting and that our customers were expecting that were disrupted, and this certainly had an impact upon our overall retail performance in the back half of June. That said, I think we’re very pleased with the overall progress on the trajectory of our core stronghold categories. Both in the U.S. and internationally, we saw growth in our core Touring, Trike, Softail categories. We are also very pleased with the reception of the CVO, which, as you alluded to in the third part of your question, we will see come into full force in the back half of the year. These are already shipping and are already arriving in our dealerships in North America. So overall, we continue to be focused on our pillars of desirability and profitability. We are managing and monitoring inventory very closely as it comes back online post the production suspension to make sure we are prioritizing the right units, that we are ensuring that we have the tools in place to smooth out some of the lumpiness, as you can imagine, is resulting in the network, given that production suspension. We don’t have all the bikes that we want, and we don’t have all the bikes in the right place, as we’re working with our dealers to adjust that, and we’ll continue to do so in the back half of the year. But overall, our intention, to your point around shipping and managing dealer inventory, is to ensure that we are at healthy levels of inventory. We want to protect 2024. We want to make sure that we are managing a cadence of supply that is in line with those overall objectives, and we will continue to do so as we have in the front half of the year, in the back half of the year.

Our next question comes from Fred Wightman from Wolfe Research. Please go ahead. Your line is open.

Hey guys. Just one follow-up and then a separate question. I know, Jochen, in the past, you talked about full year retail being flat to slightly positive. Wondering if that’s still the case. And then the second question, can you just give an update as far as the revenue build that’s in that flat to plus 3%? How you sort of see units mix and price shaking out for the full year? Thanks.

Yes, I’ll let Jonathan take the second question. Overall, it really depends on how the third quarter turns out. And that has very much a reflection of our ability to ship the right bikes to the right dealerships. And yes, as Edel just alluded to, that disruption of our production facility has sort of led to a bit of an imbalance that we need to sort out and are sorting out every day. And – but to really comment on retail trends at this point is, I think, not advisable. Yes, so I’ll have to leave it at that.

Okay. And then – thank you, Fred. So a little more information in terms of what we’re looking at from a guidance perspective. So as you touched on revenue growth of flat to 3%, our revised forecast includes wholesale unit decreases of around 1% to 3%. And then obviously, as we look, we continue to expect 1 to 2 points of mix as we focus on our profitable core business, and also 1 to 2 points of pricing as we offset a little bit of a more moderated inflationary outlook. The other piece that I’ll touch on is as we look at the P&A and A&L business, we do see those businesses continuing to grow year-over-year.

Our next question comes from Joe Altobello from Raymond James. Please go ahead. Your line is open.

Thanks. Hey guys, good morning. I guess, first, could you quantify the impact that the shutdown had on shipments and retail in the quarter, maybe how much of the decline – or the impact on retail from the discontinuation of Sportster? Edel O’Sullivan: Thank you, Joe. Well, difficult to pinpoint with precision. As you can imagine, for those bikes that we had named in last names or customers of those that were in highest demand like our anniversary models. It is an easier task to identify the impact of the production suspension. But overall, we know that it has led to some imbalance in the network in terms of where the inventory is, difficult to pinpoint exactly for the broad assortment, but certainly one that we feel was a factor in the back half of June. And we continue, as Jochen mentioned, to work through how and what we bring back in what order and what priority to ensure that we have the right levels of inventory and that we are supporting retail growth in the back half of the year.

Our next question comes from James Hardiman from Citi. Please go ahead. Your line is open.

Hi, thanks for taking my call. I wanted to dig in to maybe that last point. You talked about the right level of inventory. Can you help us figure out what that right level of inventory is? Whether it’s sort of total units or weeks on hand to finish the year. Obviously, you pointed out that inventory levels are down pretty substantially versus 2019, but – so is retail relative to 2019 by a pretty similar amount. And I think the way that you had previously contextualized this was that you were way too high as we think about 2019 in terms of weeks on hand. So maybe any incremental color on how to think about where you finish the year. I can appreciate that it’s difficult, not really knowing where retail is going to shake out. But presumably, if retail is down, inventories would need to be down more, sort of situation. So help us walk through that. Edel O’Sullivan: Yes. Thank you for the question. You’re right. We look at it through three different lenses. We look at total number of units, we look at days of coverage, and we look at it relative to historical trends as well as actual sales. Our estimations will indicate that we are, in fact, much lower in terms of inventory than in the decline in sales versus 2019. And this is very much in line with our strategy of being more prudent with our inventory and making sure that we are protecting desirability. We intend to continue to manage that balance towards the end of the year. The inventory levels overall fluctuate throughout the year. Of course, we want to have higher levels to support the riding season. But we continue to monitor that through those three lenses, total number of units as well as the days of coverage looking forward into 2024 as well as where we are versus historical levels. As you indicate, that will be a balance that we will continue to manage through Q3 and into Q4. We intend to make sure that we are managing the production return to that desirability. But it is certainly something where we believe and intend to continue to remain on strategy in terms of a much lighter inventory load, even accounting for declining sales versus 2019.

Our next question comes from Tristan Thomas-Martin from BMO Capital Markets. Please go ahead. Your line is open.

Good morning. I just had a question on promos. You introduced some promos in the quarter, the rate buy-downs, the 0 money down on some of the trading credits. Is that kind of what we should expect moving forward? And then also what levers do you have to pull if let’s say, you wanted to use retail demand a little bit? Edel O’Sullivan: Thank you. As you indicate, our main priority in Q2 was around two aspects. The first is driving traffic to our dealers. So aside from promotional spend, we certainly ramped up our overall marketing investment in generating leads and generating traffic to dealers. That’s the first component, and we intend to continue to maintain those activities. Things like our open houses that we have held a couple throughout the second quarter were extremely successful and we think very well received by both customers as well as dealers. The second are the promotional aspects that you indicate. Our focus is really around the topic of affordability. We have been looking both at promotional rates in conjunction with our dealers as well as trade-in and trade-off promos that allow us to address some of the challenges that our most loyal customers have as they think through an upgrade cycle in the year of 2023, given dynamics with interest rates. We intend to continue to look at those levers in the back half of the year, all within the broader framework of managing desirability. We want to make sure that we remain in healthy levels, but also need to address some of those imbalances in production and inventory as we look towards the back half of 2023.

Our next question comes from Noah Zatzkin from KeyBanc Capital Markets. Please go ahead. Your line is open.

Hi, thanks for taking my question. Just one for me on the unchanged HDFS guide. Obviously, year-over-year, the first half kind of tracking below full year guidance. So just wondering if you could provide some color on kind of the puts and takes we should be thinking about in terms of the second half improvement there. Thanks.

Okay. Thanks, Noah. So as we look at the HDFS guidance and kind of leaving that unchanged throughout the year, we obviously track what we see from an overall delinquency and loss perspective. And as we look at that through the quarters, we’re gaining confidence in terms of that being contemplated in terms of where we are from an overall guidance standpoint. Part of what allows us to feel comfortable as we look at some of the – are some of the changes that we’ve made from a servicing activity standpoint. So through what we’re doing in terms of engaging with consumers who are late, engaging better technology in the way that we do that from a text perspective, as well as e-mail integration. We’ve also introduced artificial intelligence into the way that we monitor our call activity to ensure that our agents are actually engaging with consumers in a kind of a path that we enjoy. We also have seen within the HDFS business some nice engagement and improvement in the revenue side of the equation. So we’ve been engaged in taking rate where we can, following the Fed actions. And then in addition, we are seeing some improved revenue from the commercial lending side of the business. And then lastly, we also see growth in fee income products associated with things like Visa protection products, insurance and much of our approach in international.

Our next question comes from David MacGregor from Longbow Research. Please go ahead. Your line is open.

Yes. Good morning, everyone. I had a question on the Riders Academy. And just specifically on conversion rates. And just – I wonder if you could just talk about how does the number of Rider Academy graduates that – graduates that buy a bike compare with what you were seeing a year ago. And of those who do buy a bike, are you seeing any change in terms of their preferences for new bikes versus used bikes?

Well, the Riding Academy in the first quarter was down, and that was purely weather-related, because a lot of the Riding Academy initiatives couldn’t happen due to bad weather pretty much throughout America. So – but the Riding Academies overall, the courses are fully booked, and we expect that to continue. And maybe there is an opportunity that the weather stays better throughout the year and longer. Certainly, nobody is going to do Riding Academy in whatever, 100 Fahrenheit. But weather hasn’t been benefiting Riding Academy. But when the courses happen and bookings for our courses are very strong and continue to be strong throughout the year, if weather permits.

Nice. The question is on… Edel O’Sullivan: Yes. Sorry, I just wanted to add a little bit on that as well as your question on new versus used. So we continue to see a very strong conversion rate coming out of our Riding Academy classes. These are one of the main avenues that we have for new to sport riders to join the Harley-Davidson brand. We find that our new to sport riders are actually well distributed between both new and used. Obviously, used is a bigger component overall. But they are both in new and used. And it is also true that many of those new to sport riders are entering across the full gamut of our motorcycles, so not necessarily just on smaller CC or lower CC motorcycles, but also on some of our broader or larger motorcycles. So it is an excellent feeder, and we do see conversion of our new to sport riders into both new and used motorcycles across the full gamut of CCs all the way up into our Touring range.

Our next question comes from Jaime Katz from Morningstar. Please go ahead. Your line is open.

Hi, good morning. I guess I’d be interested to hear, given the suspensions you had both last year and this year, is there are any particular protocols you guys have put into place to ensure the quality of the products from the suppliers that you’re dealing with. And then if you could, could you clarify whether or not EV is really back on track with the start-up of the Del Mar to ship at the cadence that was previously expected? Thanks.

Yes. I mean we have a top-notch quality control in place. The issue that we’ve seen last year and this year are not related, first of all, and they were from a Tier 2 supplier, which is pretty much, quality-wise, supervised by our Tier 1 supplier. So while we have overall quality measures in place and have a Chief Quality Officer as well and very clear mechanisms of how we control quality through – during production in particular, and thereafter, obviously, with product in the field, we cannot control every single component that is being delivered from Tier 2 suppliers to Tier 1 suppliers. There is some level of control that needs to be provided by the Tier 2 supplier themselves, obviously, and then our Tier 1 supplier as well that are working on using those components into their systems. So – and the two – as I mentioned, these two aspects were not related and we treat that as a quality issue. And through the control that we had, we were – we found out that there was an issue through our Tier 2 and Tier 1 supplier. So that’s as much as I can say. And then Karim do you...

Yes, I will. Good morning, Jaime. So for EV back on track, well, I guess we got a bit delayed on the start of production for the Del Mar. But we’re happy to report that the first bikes actually were produced yesterday. So now we have the ramp-up upcoming in August. So we will be back on track with the Del Mar very soon now.

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

Good morning. Thank you for taking my questions. Just quick question on the uneven mix in the channel. Do you believe, given where dealer inventories are at and maybe a little light in some categories, are you expecting a richer mix of product shifts in the back half of the year? Edel O’Sullivan: Thank you, Brandon, for your question. I think that our main objective is exactly as you pointed out, in those timelines where we have a lower coverage or where we have customers awaiting their bikes to make sure that we are prioritizing those. I’m sure you have heard – many of you have heard through our dealers that these – that many of our anniversary bikes are still expecting in the network as well as the increased interest in our Trike lineup, particularly on the back of the launch this year, which has been incredibly successful. So we are trying to be very precise to the question on inventory, not only in the overall total levels domestically and internationally, but also the mix of those units, starting by customer orders as well as those families when we have the best combination of demand and the lowest inventory in the network. So I would expect that, that will continue to be our priority in the back half of the year and to manage to that inventory coverage on a family level.

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