Harley-Davidson, Inc.

I'm Colin, 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 mutually different. Those risks include, among others, matters we have noted in today's earnings release and in our latest filings with the SEC. Joining me for this morning's call are Artie Davidson, Chief Executive Officer, Artie Stars, and Chief Financial Officer and President of Commercial, Jonathan Rue, who is also the Chairman of Livewire Group, Inc., and will be available to address any questions about Livewire during the Q&A portion of today's call. With that, Let me turn it over to Harley-Davidson CEO, RD Star.

Thank you, Sean, and good morning, everyone. I'm excited to be with you today and thrilled to be partnering with our board, Jonathan, and our leadership team, with the broader team here at Harley-Davidson, and of course, with the Harley-Davidson Dealer Network. Over the past month, I've been truly energized by what I've experienced across the motor company, at HDFS and dealerships, and with the broader rider community. I'd like to take a moment to thank all the riders I've had the pleasure of meeting at dealerships and dealer events since joining the company, your passion and connection to the brand are truly inspiring. On October 1st, I started my HD chapter with the dealer network right here in Milwaukee at our annual dealer forum, where over 1500 of our global dealers came together in celebration of Harley Davidson. During our time together, We reviewed our product launches and marketing strategies for 2026, celebrated the valuable role our dealers play in our business, and most importantly, began our planning and alignment to deliver successfully on the year ahead. Since then, I've been working with our team of employees at Juneau Avenue and have visited company facilities in Wisconsin and Pennsylvania. I've been impressed with the level of talent, craftsmanship, and the unwavering commitment to the brand from employees at all levels across the company. That resilience is part of what makes Harley-Davidson so special. On the road, I was pleased to meet with over 260 dealers from corner to corner across the country, listening and learning and beginning to shape our shared future together. It's clear that Harley-Davidson has the opportunity to improve dealer health across the network, and I'm committed to addressing it quickly. A healthy Harley depends on a healthy dealer network, and right now we have work to do to strengthen that foundation, starting with dealer profitability. I've already made some quick decisions aimed at supporting the network in the immediate term. First, we're accelerating our focus on improving motorcycle inventory management. Jonathan will share more details in a moment, but our focus is on reducing overall inventory levels at dealerships, particularly in the touring and CVO segments to ensure a healthier, more balanced mix across the network. Second, we're introducing market responsive customer facing promotions. These are designed to drive traffic to our dealers, help close more sales and support the reduction of touring inventory by moving units through retail. But this is especially important given the challenging macro environment we're operating in. Third, We're assessing alternative approaches to e-commerce, working closely with our U.S. Dealer Advisory Council. The goal here is to better meet the expectations of today's consumer while maintaining the right balance with the needs of the dealer network. And fourth, we're reviewing fuel facility guidelines to provide more flexibility for dealers. While that review is underway, penalties for noncompliance will be suspended for 12 months. These are immediate actions but they're also an important step towards strengthening our relationship with dealers while setting us up for a stronger, more resilient future together. Jonathan will get into more details on the quarter. And while we are disappointed by the results of the motor company, our Q3 results positively reflect the HDFS transaction, demonstrating the strategic value of HDFS as part of the overall business. Aligned to what you've seen in the numbers, I'd like to share some initial observations about the strengths and opportunities that I've seen since joining the company. Starting with the strengths. First, brand and community. As someone new to the sport of riding and to the Harley-Davidson community, having earned my motorcycle license this year, I'm blown away by the incredible camaraderie that surrounds the brand. The support, passion, and shared spirit among riders make it feel like more than just a community, it's a family. That passion is one of our greatest assets and a key driver of future growth for both the brand and business. Second, our product. Harley-Davidson is building the best bikes in the world. We'll continue to focus on delivering the best products for our customers and on strengthening our manufacturing capabilities to ensure excellence in every bike that leaves our facilities. Third, our dealer network. It's clear to me that the exclusive HD dealer network is a unique and powerful differentiator. As I said a moment ago, we need to build on that foundation. We'll continue to invest in supporting and strengthening the network as we all navigate the evolving commercial environment. And fourth, HDFS. The HDFS business continues to be a significant strength and asset to the company and to the HD dealer network. Post-transaction, this will continue to be the case. Now turning to the opportunities. First, given the continued interest rate environment, affordability will be critical in winning in the market. Our product portfolio must balance aspiration with accessibility. Finding the right mix across our future portfolio will ensure we don't over index on one product family while continuing to appeal to new riders. Second, we must improve our speed to market. We're building the best bikes but we need to move faster to bring innovation to market and capture new riders. That won't happen overnight, but the competencies and talent exist within Harley-Davidson to accelerate how quickly we bring new products and experiences to customers. Lastly, in the current demand environment, we must sharpen our focus on cost and capital efficiency. Before I hand it over to Jonathan, I want to say a few words on Livewire. I want to congratulate Kareem and the team for the successful launch of the S4 Honcho last month. The product has been met with a lot of positivity, and we look forward to seeing the bikes in the street next year. And with that, Jonathan, over to you.

Thank you, Arti, and good morning to all. I'd like to start with an update on what we refer to as the HDFS transaction. On July 30th, Harley-Davidson announced a strategic partnership with KKR and PIMCO to transform Harley-Davidson Financial Services into a capital-light, de-risked business model. The transaction includes three key components. Backbook sale, sale of approximately $6 billion of existing HDFS loan receivables, forward flow agreement, sale of future HDFS loan originations, and sale of equity interest. sale of a 9.8% common equity interest in HDFS, KKR, and BIMCO. At the end of October, we signed and completed agreements for each of these three components. I will go into each of these in more detail. First of all, the back book sale. In Q3, HDFS sold the majority of its residual interest, resulting in a gain of $27 million and the derecognition of $1.9 billion of net finance receivables and $1.7 billion of related debt, among other assets and liabilities. HDFS classified $4.1 billion of finance receivables as held for sale during Q3, resulting in the reversal of the related allowance for credit losses and driving the $301 million benefit in the provision for credit losses. In Q4, the $4.1 billion of finance receivables previously classified as held for sale were sold on October 30th to strategic partners, KKR and PIMCO. After the loan sale, HDFS plans to continue the management of all finance receivables sold to the strategic partners, where HDFS will receive a servicing fee of 1% for prime-rated retail finance receivables and 2.5% for subprime-rated retail finance receivables. Secondly, the Forward Flow Agreement. Starting in Q4, On a monthly basis, HDFS expects to sell approximately two-thirds of retail loan originations over the course of its five-year agreement. This did not have an impact on the Q3 financial statements. The continued management of the finance receivables sold to the strategic partners will result in servicing fees for HDFS, where HDFS will receive a servicing fee of 1% for prime-rated retail finance receivables and 2.5% for subprime-rated retail finance receivables. And finally, the sale of equity interests. HDFS has sold a 9.8% common equity interest in the fourth quarter to investment vehicles managed by KKR and PIMCO, 4.9% to each, based on a 1.75 times post-transaction book value. We expect KKR and PIMCO to participate in 9.8% of future HDFS equity activity including earnings and equity raises with strategic partners holding an exchange right into hog stock after seven years. Taking a step back, by executing these three components, including selling approximately $6 billion of loans in the back book sale at a premium to par, and then with a portion of the proceeds paying off the HDFF debt that corresponds with the loans over the balance of Q4 and into Q1 of 26, This will right-size the debt structure at HDFS, and as a result, the company expects the transaction to unlock $1.2 to $1.25 billion in discretionary cash through Q1 of 2026. In addition, as HDFS transforms to a capital-light model, HDFS will have reduced capital requirements as the KKR and PIMCO investment vehicles will be funding these assets. In return, we expect this will result in a higher return on equity for the HDFS business. At the HDI level, or parent level, HDI expects to use the proceeds, first of all, to reduce HDI indebtedness, secondly, to buy back Harley-Davidson shares, and thirdly, for other corporate purposes. We expect that ARTI will provide more details on these uses by spring of 2026. Stepping away from the numbers. We are excited to unlock some of the significant value of HDFS for our shareholders through the sale of a minority stake while transforming HDFS into a capital-light financing business. In addition, beginning in 2026, the transaction creates a path that we believe will grow HDFS operating income over the coming years through new loan origination fees and loan servicing fees. And with this transaction, we retain full control and majority ownership of HDFS, where there is absolutely no change to how our dealers or customers transact with or are serviced by Harley-Davidson and HDFS. Now, I will turn to Q3 results at Harley-Davidson. I plan to start on page six of the presentation, where I will briefly summarize the consolidated financial results for the third quarter of 2025 And subsequently, I'll go into further detail on each business segment. Consolidated revenue in the third quarter was up 17%, largely driven by the increase in revenue of 23%, or up $198 million versus prior year at HDMC. HDFS revenue is down 3%, while LiveWire revenue was up 16%. Consolidated operating income in the third quarter was $475 million, primarily driven by HDFS operating income, which was favorably impacted by the HDFS transaction. At HDMC, operating income was down 2% relative to prior year. The LiveWire segment had an operating loss of $18 million. Consolidated operating income margin in the third quarter came in at 35.4%, up significantly relative to 9.2% in the third quarter a year ago. primarily due to the impacts associated with the HDFS transaction. I plan to go into further detail on each business segment's profit and loss drivers in the next section. Third quarter earnings per share was $3.10. In Q3, global retail was down 6%, with the North American market being down 5%, and international markets down 9%, reflecting continued soft demand amidst unfavorable consumer confidence high relative interest rates, and inflation concerns. In North America, our dealers continued to experience lower customer traffic. We experienced this in a more dramatic manner in the first half of 2025, but adjusted our consumer marketing and go-to-market strategies at the end of Q2 and into Q3, which had a positive impact in Q3, evidenced by the sequential improvement in North America retail performance. On a positive note, the Softail family delivered strong growth of 9%, reflecting the strength of the revised product lineup. Non-core motorcycles in North America, including Adventure Touring and Nyster model motorcycles, also saw solid gains. Specifically, Adventure Touring bikes were up 4% in Q3 of 2025, driven by the refreshed 2025 Adventure Touring lineup, where the Pan America 1250ST was newly introduced. In EMEA, retail was down 17% after a comparatively strong first half. Core families, Touring, Trike, and Softail, were down more than non-core motorcycles, reflecting affordability and inflationary concerns in EMEA. This was partially offset by strong positive growth in non-core segments, including Adventure Touring and Nightster model motorcycles. From a country perspective, within EMEA, cluster of Spain, Portugal, and Italy performed strongest versus the rest of Europe, although it was still down modestly in Q3 of 25 versus prior year. In APAC, retail was down 3%, which is a relative improvement from the first half of 2025. The Softail family was up 6% as consumers responded positively to the updated Softail portfolio. There continues to be intense competition in the lightweight and smaller motorcycle segments. From a country perspective, we welcomed Japan turning in positive growth for the first time since Q4 of 2023. In addition, we saw positive retail performance in Thailand, Malaysia, and Taiwan. In Latin America, retail was up 16%, where both Brazil and Mexico were up significantly in the quarter. This is the first quarter of growth for the region since Q3 of 2024, after three quarters of decline. Softails were the big positive standout in the region, while on the other hand, touring bikes were down low double-digit percentage points. In Q3 on a global basis, the Softail family delivered positive growth versus prior year, and as I mentioned earlier, Softails were up 9% in North America alone, reflecting the strength of the revised product portfolio and its appeal to core riders. In the U.S., market share for HD in the large cruiser category expanded from 61% in Q3 of 2024 to 68% in Q3 of 2025, underscoring the momentum behind our updated lineup. Moving on to dealer inventory, global dealer motorcycle inventories were down 13% at the end of Q3 of 2025 compared to the end of Q3 of 2024. We continued to prioritize reducing global dealer inventory, and we are committed to supporting a significant year-over-year dealer inventory reduction by year end with the continued goal of better matching inventory with demand. Looking at revenue, HDMC revenue increased by 23% in Q3. Focusing on the key drivers for the quarter, 20 points of increase came from increased wholesale volume at HDMC, where motorcycle shipments in the quarter were up 33%, coming in at 36,500 units. Pricing net of sales incentives was flat in Q3. Two points of increase came from mix as we balanced out the delivery of motorcycle models and markets. And finally, foreign exchange impacts resulted in one point of growth to Q3 revenue relative to prior year. In Q3, HDMC gross margin was 26.4%, which compares to 30.1% in the prior year. Third quarter gross margin was down 3.7 points versus prior year due to unfavorable operating leverage as higher unit cost is derived from production levels experienced in Q2 of 2025 but sold in Q3 of 2025. The cost of new or increased tariffs implemented this year which came in at $27 million in Q3 of 2025, and unfavorable foreign currency impacts. These factors were partially offset by the favorable impact of net pricing and mix. Third quarter operating income margin was down 1.3 points due to the factors above, while operating expense was $20 million higher than a year ago, due in part to higher marketing spend at the dealer level. Turning to slide 11. In the year-to-date period, HDMC gross margin was 28.0%, which compares to 31.3% in the prior year-to-date period. The decrease of 320 basis points was driven primarily by the negative impacts of lower operating leverage and the cost of new or increased tariffs implemented in 2025. On their own, the cost of new or increased tariffs in 2025 resulted in $45 million of incremental costs in the year-to-date period, creating a headwind of 140 basis points to the year-to-date gross margin. This excludes operational costs of $7 million to mitigate tariff impacts. The year-to-date results include modest cost inflation of about 1%. The negative impacts I outlined are partially offset by the positive impacts to gross margins of pricing, mix, and foreign currency. Operating expense in the year-to-date period came in approximately flat relative to prior year at $665 million, which resulted in a HCMC operating margin of 7.2%, which compares to 13.3% in the prior year-to-date period. Before we turn to the next slide, I would like to provide an update on our ongoing productivity cost program. We achieved $75 million of productivity year to date, primarily from logistics and supply chain initiatives, and continue to expect to achieve $100 million for all of 2025. As a reminder, for the cumulative three-year period of 2022 through 2024, we have achieved productivity savings of $257 million, with another $100 million expected for full year 2025. In 2026, we have plans to achieve another $100 million, exceeding our target by over 10%, as mentioned last quarter. Turning to slide 12. The global tariff environment remains uncertain, but we wanted to provide an update. In Q3 of 2025, the cost of new or increased tariffs was $27 million. As mentioned earlier, the cost of new or increased tariffs in 2025 through the end of Q3 was $45 million. This includes direct tariff exposure, Harley-Davidson importing and exporting products, as well as indirect tariff exposure from suppliers. This excludes pricing mitigation actions, as well as operational costs related to new or increased tariffs. Harley-Davidson is a business very centered in and around the U.S. Three of four manufacturing plants are U.S.-based, and 100% of our U.S. core product is manufactured in the U.S. We also have a U.S.-centric approach to sourcing with approximately 75% of component purchasing coming from the U.S. With that in mind, we estimate our full year 2025 impact from the direct cost of new or increased tariffs to be in the range of $55 to $75 million. We have a number of actions underway to mitigate the impact and we expect this situation will remain fluid given the uncertainty that still exists. Turning to slides 13, 14, and 15 to touch on HDFS and its financial results. At Harley-Davidson Financial Services, Q3 revenue came in at $261 million, a decrease of 3% where interest income was down $35 million and other income was up $26 million. for a net result of down $8 million in Q3 of 2025 relative to Q3 of 2024. Interest income was down due to lower retail loan receivables at a higher average yield and lower wholesale receivables at a lower average yield. Q3 2025 other income includes a $27 million gain on the sale of 95% of HDFS's certificate interest in certain securitization residual interest, which closed in late August. HDFS's operating income increased by $362 million in the third quarter, or 472%, versus prior year, driven by the impact of the HDFS transaction. The increase was primarily due to a lower provision for credit losses and higher other income, partially offset by lower net interest income and higher operating expense. The provision for credit loss expense was favorable primarily due to the reversal of the allowance for credit losses on held-for-sale retail finance receivables, which drove a $301 million benefit in Q3 of 2025, compared with an expense of $58 million recorded in the provision for credit losses in Q3 of 2024. In Q3, HDFS's annualized retail credit loss ratio was 3.2%. which compares to 3.1% in the year-ago period. Retail credit losses were $35 million in Q3 of 2025. Total finance receivables at the end of Q3 of 2025 were $6 billion, a decline of 24% versus prior year, primarily due to the HDFS transaction. The $6 billion of quarter-end finance receivables included $4.1 billion of finance receivables classified as held for sale, which resulted in the reversal of the associated allowance for credit losses during Q3 of 2025. The held for sale finance receivables were sold in October as part of the HDFS transaction. Total retail loan originations in Q3 of 2025 came in at $757 million, roughly in line with the $754 million of retail loan originations in Q3 of 2024. For the LiveWire segment, which is on page 16, consolidated revenue increased in Q3 of 2025 compared to the prior year period, driven by an increase in electric balance bike and electric bike revenue for the quarter year over year. Selling administrative and engineering expense was also lower by $9 million for the quarter year over year. In Q3, LiveWire delivered a 30% or $8 million improvement in consolidated operating loss and reduced its use of cash and cash equivalents through Q3 of 2025 by 39% or $31 million compared to Q3 of 2024. We now expect Livewire's full-year operating loss to come in between $72 and $77 million. On a unit basis, Livewire reported sales of 184 units in Q3 compared to 99 units sold in the prior Q3. This increase in unit sales for the quarter was driven by the Twist and Go promotion, which began on August 28th. Wrapping up with Consolidated Harley-Davidson and Q3 financial results, we delivered $417 million of operating cash flow in the Q3 2025 year-to-date period compared to $931 million in the Q3 2024 year-to-date period. The decline was due to new originations of retail finance receivables that were classified as health for sale, which is a change as this is classified as an operating activity under U.S. GAAP. As a result, the originations outflows reduced cash flow from operations as there were no comparative retail finance receivable originations classified as health for sale in the prior year. Total cash and cash equivalents ended at $1.8 billion, which was $469 million lower than at the end of Q3 prior year. This consolidated cash number includes $16 million at Livewire. Additionally, as part of our capital allocation strategy, we remain committed to returning capital to shareholders. In Q3 of 2025, we bought back 3.4 million shares of our stock at a value of $100 million. For the Q3 2025 year-to-date period, we have bought back 6.8 million shares of our stock at a value of $187 million. Slide 18 outlines our aggregate capital returns. Since the start of 2022, we have returned an aggregate of $1.7 billion through discretionary share repurchases and cash dividends. Given that the global tariff situation remains ongoing and uncertain, we continue to withhold our full year 2025 financial outlook for HDMC and HDI. We continue to expect HDFS to come in at approximately $525 to $550 million of operating income for 2025. As we move into Q4 of 2025 and with the noted closing of the HDFS transaction, I will summarize the intended use of proceeds, which will support Harley-Davidson's capital allocation priorities. Cash is expected to be used for the following. First, approximately $450 million of debt reduction at the HDI level. Second, investment in HDMC and organic growth initiatives. And finally, continued share repurchases, evidenced by today's announcement, where Harley-Davidson announced its plans to enter into an accelerated share repurchase agreement with Goldman Sachs to repurchase $200 million of shares of the company's common stock. This announcement is part of the previously announced plan to repurchase $1 billion in shares by the end of 2026. The company expects the transactions under the ASR agreement to be completed by no later than the first quarter of 2026. And with that, I'll turn it back to Artie.