Harley-Davidson, Inc.

Thank you for standing by and welcome to the Harley-Davidson 2025 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 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 in our latest findings with the SEC. Joining me for this morning's call are Harley-Davidson Chief Executive Officer Yogan Veitz, also Chief Financial Officer Jonathan Root, and we have LiveWire's Chief Executive Officer Kareem Dines. With that, let me turn it over to our CEO, Yogan Veitz. Yogan?

Thank you, Sean. Good morning, everyone, and thank you for joining today's call. This morning, we're going to start with details on our HDFS transaction that were announced earlier today before moving on to the Q2 results. We're very pleased to share that we've entered into strategic partnerships with both KKR and PIMCO for HDFS after completing a rigorous selection process with over a dozen parties bidding for the HDFS business over three rounds. We've consistently spoken about the strategic and financial value of the HDFS business, and we are very excited to announce this transaction that clearly reinforces our view. On our first quarter call, we laid out four key objectives that any transaction involving HDFS would need to achieve, and I'm pleased to say that we are checking the box on all of them, providing the business with a lot of flexibility in the future. First, we said it would have to reflect the significant value HDFS represents to Harley-Davidson and its shareholders. The investment in HDFS equity at approximately 1.75 times post-transaction book valuation by these two world-class investors clearly achieves that goal, illustrating HDFS's class-leading returns and corresponding significantly higher valuation to book value. Second, a transaction would have to create value over the long term with a strategic partner. We expect this transaction will accomplish that across a range of fronts. Our new strategic partners will purchase about two-thirds of HDFS future retail loan originations at a premium on an annual basis for five years. Going forward, HDFS will retain one-third of new consumer loans, and when combined with new fee streams, we expect it will significantly increase HDFS's go-forward ROE to the high 20s. And with their minority equity ownership of HDFS, KK and Pimko are in it for the long term. Third, a transaction would have to allow us to maintain or lower our overall cost of funding. With this transaction, we are reducing our overall leverage and the perceived risk highlighted every time the business environment deteriorates, freeing up significant equity on the balance sheet and creating a long-term stable funding mechanism, all of which we believe will contribute to greater funding flexibility and lower borrowing costs. We expect this transaction to boost HDFS earnings substantially this year by 275 to 300 million operating income. On top of the strong HDFS operating result expected this year, we believe there's a clear path to growing HDFS operating income quickly toward pre-transaction levels in an asset-like manner in future years. We plan to achieve this through the retention of only approximately one-third of annual consumer originations, as well as through new fee streams from loan originations and and organic growth, along with the commercial finance, insurance, car products and international partnerships that we retain. Lastly, but importantly, we were clear that the transaction could not have a negative impact on our customers or dealers. For customers, this transaction will be transparent, with HDFS continuing to originate and service both new and existing retail loans. And for our dealers, HDFS will be able to continue providing dealers with service, benefits and flexibility commensurate with what HDFS currently provides. Most importantly, this transaction will free up cash and allow additional flexibility to support demand-driving initiatives. Overall, we believe the new partnership is a big win on all levels. In addition to other significant future benefits, this transaction is expected to generate cash that will allow HDFS to pay a distribution of approximately $1.25 billion to HDI and leave HDFS well positioned to continue to serve our customers and dealers in the best possible ways. With the cash generated from this transaction, we are planning to reduce our debt by about $450 million and to accelerate our $1 billion share buyback program announced last year with the intention to purchase $500 million in the second half of 2025. Also, we expect this will give us the flexibility to invest up to $300 million of additional funds into future growth opportunities. The post-transaction book value multiple realized in this transaction is a significant valuation for HDFS and we believe will serve as a major value unlock over time as it clearly highlights the substantial undervaluation of HDMC relative to other comparable companies. To summarize, the post-transaction HDFS business's equity has been valued by our partners at around $500 million or approximately 1.75 times post-transaction book value. As a result of this transaction, HDFS intends to distribute $1.25 billion of cash to HDI representing around 40% of our current market cap. The combined $1.75 billion of HDFS driven value compares to Harley-Davidson's current market cap of approximately $3 billion. In addition, HDI was holding $1.6 billion of cash and equivalents at the end of Q2. This transaction implies that HDMS is trading at around eight times consensus operating income compared to peers at around 14 times. Turning to HDMC and Q2. In the face of a continuously challenging commercial environment for discretionary products in particular, consolidated revenue for the second quarter declined 19% driven primarily by a planned reduction in motorcycle shipments and soft demand. Global motorcycle retail sales were down 15% year over year reflecting the continued impact of elevated interest rates on customer purchasing behavior, broader demand softness and overall economic uncertainty. In response to the ongoing uncertainty and persistently higher than expected interest rates, the company will look to introduce a new efficiency program and enhance and where possible accelerate its existing productivity initiatives. Any efforts will leverage technology including AI which we expect will deliver substantial cost savings and drive further productivity gains across the business. Across our portfolio, performance was mixed depending on the segment. Touring continued to face headwinds as we left strong model year 24 launch of the redesigned touring platform. That said, through the quarter, we remain disciplined in motor company-led promotions even as competitors leaned heavily on promotional activity, an area where we have exercised greater restraint including on our 25 models. The newly refreshed soft tail lineup is performing better in the market. Additionally, our Revmax platform including both adventure touring and sports models grew 16% year over year in North America. This growth was driven by several factors including the strategic repricing of nights that are below $10,000 and increasing consumer appreciation for the platform. Overall, in the US, while market share for touring declined, we saw an increase in our overall cruiser business as well as a modest increase in our adventure touring offering in a challenging overall market. As promised during the quarter, we continue to reduce dealer inventory with global levels down 28% compared to Q224. This aligns with our ongoing commitment to right size inventory and better match demand. The fluid global Paris environment and negative consumer sentiment remains a challenge for the business. However, our ongoing engagement with various governments gives us cautious optimism that future trade agreements may help limit the overall impact on our operations. The EU agreement announced this past weekend looks to be a positive step forward. In the meantime, our teams are working diligently to manage the near-term effects on Q25 while also implementing longer-term mitigation strategies to minimize potential impacts on the business. Additionally, following productive engagement with the US administration, we are pleased that Harley-Davidson motorcycles have been included in the recently signed automotive tax deduction legislation, part of the broader economic bill. Under the new law, interest paid on loans for new US-built motorcycle purchases up to $10,000 annually is tax deductible when all vehicle and customer eligibility criteria are met. We believe this will have a positive effect and stimulate demand as the tax incentives take hold in the market. Turning to racing. Since 2021, we've leaned into our racing heritage, both through product development and the revival of Harley-Davidson factory racing, competing at the highest level in both, picking over the Baggers and Hooligan series, where we are proud to be leading both this year. Drawing inspiration from the track to the street, in March we introduced our first limited production race replica inspired by our king of the Baggers race bikes, the CVO Road Glide RR. This model blends elite performance with the signature craftsmanship of Harley-Davidson's CVO lineup. As expected, the 131 motorcycles priced at $110,000 generate an oversubscribed waitlist and pre-orders, underscoring the growing excitement around our racing-inspired offerings, including P&A and racing experiences, highlighting new opportunities in the future. We remain energized by the power of racing to ignite passion and are committed to leveraging it as a strategic catalyst for brand and product innovation. In that spirit, this may renounce the landmark partnership with MotoGP, the leading global motorcycle racing championship in the world, to launch a new racing series in 2016, featuring Harley-Davidson Baggers motorcycles. The 12th race championship will span six Grand Prixs across Europe and North America, with each round showcasing two races on race-prepared Harley-Davidson Road Glide motorcycles. The grid will feature six straight teams, each fielding two riders, and will be supported by Harley-Davidson factory racing. I'm pleased to say that we're in advanced stages of signing various teams following a very strong interest from many race teams. With this new series, we will be bringing a bold, high-performance expression of the Harley-Davidson brand to the global stage, celebrating our historic racing legacy while redefining its future. It promises to be a thrilling addition to the world's premier motorcycle racing landscape. Stay tuned for more. Our race team's home will soon be located at Juneau Avenue, where we're making substantial investments into our historic headquarters to ensure the site is workforce-ready by year end, complementing our already-remodeled HDU building and newly-built Harley-Davidson Park. As mentioned in our previous earnings call, we are planning to introduce new entry-level products in smaller displacements, as well as an iconic classic starting next year. Today I'm pleased to confirm the launch of our first small-displacement motorcycle for the U.S. and international markets, which has been in development since 2021. Inspired by our heritage and the spirit of the iconic Harley-Davidson Sprint motorcycle, this new bike embodies boldness, irreverence, and fun, capturing the rebellious energy that defines the Harley-Davidson experience. Scheduled for release in the first half of 26 and for presentation to our global dealer network in October of this year, I'm pleased to share that we're targeting an entry price below $6,000. We believe this motorcycle will only be highly accessible but also profitable, marking a significant step forward in driving Harley-Davidson's future profitable growth and opening up a new path and motorcycle segment for the company in future years for its key markets. The new Harley-Davidson Sprint motorcycle will be complemented by an additional and for the first time an expected profitable iconic entry price point motorcycle in our traditional cruiser segment planned to follow soon after. All of this will be in addition to other new and exciting products we will be launching next year. Lastly, a few words about Livewire. The company remains committed to significantly reducing cash burn and operating losses and the Livewire team has worked diligently to manage operating expenses across the business. In Q2, Livewire delivered a 34% improvement in consolidated operating loss compared to Q2-24 and reduced its use of cash and cash equivalents for the six months ended June 30 by 36% compared to the same period in 24. We're encouraged by the progress made and there's more to come. Livewire continues to focus on its strategic pivot, maintaining market presence amid ongoing industry challenges while staying at the forefront of innovation, adding new high volume segments. Today we can confirm that Livewire intends to launch production versions of its two latest concept models that were showcased at Harley-Davidson Homecoming earlier this month. These new mini models represent a strategic refocus in the Livewire's product portfolio aligning with evolving customer expectations, broader RV adoption trends given the significantly changed consumer and incentive environment since we launched the brand, and fast growing global demand for lightweight, off-road, and urban-friendly mobility solutions. These products mark an early step into new segments with more developments expected in the coming months. Livewire has seen a tremendous response to these bikes over the past few weeks and we forward to formally launching them at Eichmann in November. And with that, Jonathan, over to you.