Harley-Davidson, Inc.

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 Sean Collins. Thank you. Please go ahead.

Thank you. Good morning. This is Sean 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 Kareem Danez. In addition, for the Q&A portion of today's call, Harley-Davidson Chief Commercial Officer Adele O'Sullivan will be joining us, as she usually does. With that, let me turn it over to our CEO, Jochen Seitz. Jochen?

Thank you, Sean. Good morning, everyone, and thank you for joining us today. Our Q2 results showed progress on the delivery of our hardwired 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 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 hardware 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 pause 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 continue to work through all the challenges with a diligent focus on our most profitable categories and prudent investments in demand generation. On this note, we're investing in supporting a message of affordability, but protecting profitability by focusing on our core categories. We continue to work with our dealers to design programs that drive traffic and help our most loyal customers with trade-ins and rates. Third, we remain committed to desirability as we manage the dynamics of the year. We continue to monitor inventory levels in the channel, as well as MSRP price realization, while managing production and inventory mix to protect the long-term health of the business. Undoubtedly, the production suspension late in the quarter created some unexpected challenges to that balance. An uneven production ramp-up based on parts availability and the high popularity of some models has led to uneven mix in the channel and units that are delayed versus our original estimates. However, we plan to work to correct the situation in the second half of the year. Our focus on desirability, managing mix, and prioritizing profitable growth over overall unit growth has driven an improvement in our HTMC gross margin to 34.8% this quarter. Now, I'll highlight select pillars of the hardwire, starting with pillar one, profit focus. Our performance in the first half of the year continues to be aligned to our Hardwire strategic pillar profit focus with strong mix and growth in our most profitable categories, with Touring and Trike up 10% and Cruiser up almost 22%, with these categories now representing 85% of the total volume versus 76% in the first half of 2022. Building on our commitment to strengthen and grow our leadership in our stronghold motorcycle segments, namely Touring, Large Cruiser and Trike, In April, we introduced the new CVO motorcycles, the CVO Street Glide and CVO Road Glide, with the motorcycles formally launching in June and first test rides being conducted as planned during our 120th homecoming anniversary in Milwaukee. By rethinking these two models from the ground up, we've advanced every aspect of the Grand American Touring Motorcycling experience. These models set a new standard for Harley-Davidson performance, technology, and style, accelerating the evolution of the world's most desirable motorcycle brand. The global launch was met with a strong response from our customers, with over 40% of the volume already pre-booked before the motorcycles arrive in U.S. dealerships. Also aligned to profit focus, building on our commitment to introduce a series of motorcycles that align with our strategy to increase desirability and to drive the legacy of Harley-Davidson, in May we introduced the latest from our Enthusiasts and Icons collections. The 23rd edition to the enthusiast collection was the Fast Journey, a celebration of muscle car culture and its racing heritage, featuring factory direct custom paint and graphic treatments across the three Harley-Davidson models, the Low Ride AST, the Street Glide ST, and the Road Glide ST. For the third installment of the Eikens motorcycle collection program, we launched the Electra Glide Highway King, inspired by the 1968 FLH Electra Glide model. We've seen a strong customer reception to both collections, with most selling out ahead of delivery. Pillar two, selective expansion. The company continues to selectively focus on opportunities in segments that we believe have the path to in-market success and profitability, capitalizing on our brand's strength, product capabilities, and selectively complemented with partnerships. Building on the launch of the HDX 350 and 500 in APEC early in the year, In July, we successfully launched the X440 in India. The launch marked the start of a new chapter in India for Harley-Davidson and the first product as part of our partnership with Hero Motor Co., which began in 2020. We've been extremely pleased with the reception that the X440 has received since launch with pre-orders exceeding initial expectations from launch. Pillar 5, customer experience. The Hardwire puts customers at the forefront of Harley-Davidson's products, experiences, and investments, and defines customers as people who may dream of motorcycling or just learn to ride, all the way to riders who are deeply passionate about and invest in the Harley-Davidson lifestyle. With that in mind, following our successful introduction of our pre-owned marketplace in 21, we've now expanded with new capabilities to search and configure new motorcycles online. Additionally, we introduced HD Membership in June, a new industry-leading community platform and membership program designed to enable all motorcycle riders, motor culture, and Harley-Davidson fans to connect, engage, and ride with one another while enjoying personalized benefits, rewards, and experiences. First level Harley-Davidson membership is free to join, offering multiple ways for members to tailor their experiences, engage with the Harley-Davidson community, and earn rewards. Members who look to further enhance the experience and benefit package may elect to add the access pass for riders and non-riders with exclusive access to key brand events and content as well as benefits such as enhanced rewards and partner benefits. Another option for riders of any motorcycle is the rider pass which includes tools, content, and benefits such as roadside assistance, motorcycle service benefits, and partner benefits to enhance the riding experience. And lastly, our Harley owners group received several key enhanced program benefits. Since launch, over 125,000 Harley Davidson membership profiles have been created, with the majority being new members, not previously Harley owners group affiliated. We've also increased our hog renewal rates since the launch of HD membership. We're excited for what this capability will bring in terms of building and activating ridership. In 22, we announced the launch of our project fuel program. an initiative to redefine the Harley-Davidson customer experience, leading with footprint transformation to provide a much-needed redesign of our dealerships. In Q2, we launched our first updated dealership in North America as part of the program designed to transform the in-person customer experience in addition to providing enhanced omnichannel purchase capability for new bikes and parts and accessories. In the coming quarters, we will start a steady cadence of updated dealerships coming online with the expectation that the full network domestically and internationally will be updated over the 10-year cycle. Before I hand it over to Karim, our new LifeWire CEO, I wanted to share my conviction in our strategy. As we evaluate the first half of the year, it's clear that despite the challenging macroeconomic environment for the business and our customers, we're making progress on our core Hardwire objectives. We're proud of several standard launches this year, including our Worldglide 3, Breakout, Anniversary models, but most significantly, our transformational CBOs, delivering on our hardware promise of innovation as part of our focus on core categories. We're also proud of the ongoing success of our large cruiser category, with one specific example being the Lowrider ST, which is resonating with younger riders, showing a new path forward in the categories we'll proudly lead. Hero Motor Corp and QJ are solid examples of innovative participation models and geographies that matter as part of our selective expansion strategy. Overall, we've been pleased by the reception with orders exceeding expectations from launch. Importantly, these partnerships not only increase ridership, but bring new riders directly to the Harley-Davidson brand. In the first half, both parts and accessories and apparel and licensing together continue to grow as complementary offerings to our motorcycle product, underscoring our growth beyond bike focus. With our dedication to optimizing the customer experience, in addition to our fuel program, we are transforming our omnichannel capabilities and the pre- and post-purchase journey. We continue to invest in improving our allocation and distribution model, which will improve our efficiency in the future. The hardwire is underpinned by our key strategic principles of profitability and desirability. 23 is a year where we continue to demonstrate our commitment to both by driving the most profitable segments of the market where we command share and by prioritizing the long-term health of the business. These principles remain the foundation to what we intend to deliver with the remainder of hardwire. We will continue to adjust according to the macroeconomic realities that we expect to play out through the change in the business environment However, we remain committed to a six-pillar hardware strategy. Thank you, and with that, I'll hand it over to Karim to talk LiveWire.