Harley-Davidson, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the 2020 Third Quarter Earnings Conference Call. Our lines are currently in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, you may do so by pressing star and the number one on your telephone keypad. 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.harleydavidson.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 Getter, 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 course for a winning future. We've stabilized our business through ongoing COVID-19 impacts. 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 are 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 remains suspended, and today we announced a 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 principles, building upon our new mission and vision. Let me share more detail about the progress we've made to date in each of the five key areas of the rewire playbook. First, we've reset our operating model across every function for simplicity, focus, and speed. The changes have driven significant efficiency, including over $150 million in expected annual ongoing savings beginning in 2021. We've also changed our leadership team, with most leaders being new to their roles and many bringing new perspectives and capabilities from outside the company. These fresh viewpoints and experiences are essential for us to become a high-performing organization. Recent additions to our team include Gina, our CFO, who's joining me on the call today. She's the first woman in this role for Harley-Davidson in our 117-year history. About time, I would say. Jack Krishnan joined us in his new role as Chief Digital Officer, and we lead our GIS and digital transformation. Theo Cattell, Vice President of Marketing, reports to me in my role as CMO, and Chad Baitel, GM of our general merchandise business, to name but a few. Second, we are focused on protecting the value of our products for our customers. We believe that a powerful network of profitable dealers is essential to delivering the best possible Harley-Davidson experience. We've committed significant resources to improve the network's overall profitability. We've reduced our global network by 4% to date, now working with our dealers to drive consistency in customer experience and to evolve our margin and incentive structure to best align with our common goals around our brand and product. We sharpened our approach and policies around supply and inventory management to help preserve the value of our bikes for our customers, while almost completely eliminating promotions and discounting activities. We expect to drive significantly higher inventory turns and much lower incentive spend as a result. And we are already seeing a reduced gap in price versus MSRP, which we believe is a critical step towards preserving the long-term value of our brand and our motorcycles. Resetting our global footprint and priorities is the third major focus of the rewire. The U.S. continues to be the most important priority market. We've significantly restructured our global business with country-specific implementation, including a fundamental model change in certain markets such as India, which we announced in a separate release this morning. Under our focus participation model, we are exiting about 40 markets where low volume and little profit do not warrant investment. We're establishing dealer-direct or distributor models in about 17 markets, and our 36 highest potential markets will have the leadership, resources, and a clearly defined operating framework that we believe will drive desirable growth and profitability in the future. With the complete reset of our regional structure, we now have a less cumbersome and much more efficient setup and have defined a clearer regional strategy in North America, EMEA, APEC, and LATAM. We've reset our sub-regional structures, as noted in our supporting slides. In this new structure, we are able to reduce to five regional offices to efficiently and effectively support restructured operations. Fourth, we are focused on streamlining our product portfolio and rebuilding our launch practices for maximum impact. We eliminated models with the lowest profit or potential, reducing the complexity of our planned product portfolio by 30%, We're now pruning further by eliminating optional offerings that customers value the least. This critical assessment is part of our new process and it reduces complexity for our dealers and confusion for our customers, while helping ensure we'll be more competitive with our winning products. We can now focus our resources where they can make the most impact, investing directly in areas that we believe have the highest potential for short-, mid-, and long-term success, like our stronghold core categories and new segments like adventure touring. We did not hesitate to delay or cancel products like Street Fighter that do not provide the right timing or return profile or advance others that were slated for later market introduction. In addition, we decided to outsource and restructure our e-bicycles business, creating a new venture with minority equity participation. This approach allows us to have measured participation in the e-bicycle market while maintaining clear focus on key motorcycle segments. This reduces complexity at the motor company and allows the new company to operate independently with agility without risking brand dilution. Bicycles will be marketed as serial one powered by Harley-Davidson. We're now committed to what we believe is a vastly improved launch cadence and approach that benefits our customers, dealers, and the company. Our model year will now change over early in Q1 each year, creating product excitement at the time most riders are preparing for the riding season. While this year's retiming from August is causing some near-term impact, further exacerbated by COVID, an early year launch will allow products a full season to sell minimizing aged inventory and floor plan costs that are more likely to accumulate during the off-season. Our new marketing plan puts the spotlight back on our brand and mission, on events that drive true conversion and on investments that build desirability. We will also properly plan for the investment required to successfully launch and promote our new products. In the past few months, we've executed impactful marketing campaigns with influencers such as Jason Momoa and Ewan McGregor. The Momoa video featured in our United We Will Ride campaign generated over 500 million views, and our efforts promoting the Long Way Up Livewire campaign garnered over 100 million positive media impressions, in addition to an exciting Apple TV series with Livewire at the center of an incredible adventure. And finally, Our rewire playbook has expanded our business focus beyond motorcycles. Our parts and accessories and general merchandise businesses, which had been underperforming for years, are now organized around dedicated leaders and a professional business unit setup that will allow us to capitalize on their potential and new opportunities as we invest in a better product assortment with a clear sales channel strategy. For general merchandise going forward, we intend to strengthen the link to our brand heritage, re-establish design and quality principles, and focus on the most profitable SKUs in critical categories. For parts and accessories, we intend to re-establish our lead as innovators in customization and tightly align our P&A strategy with new motorcycle launches. We plan to improve pricing and inventory strategy, enhance training and field support, and reduce SKUs by 15% next year. Strong foundation created by the rewire will be a starting point for the hardwire, our forthcoming five-year strategic plan, which I'll talk more about later. Now I'll hand over to Gina to review our financial results.