Harley-Davidson, Inc.

Thank you for standing by and welcome to the Harley-Davidson 2025 Fourth Quarter Investor and Analyst Conference Call. Please be advised if 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 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 filings with the SEC. Joining me for this morning's call are Harley-Davidson Chief Executive Officer Artie Starrs and Chief Financial and Commercial Officer Jonathan Rue. With that, let me turn it over to Harley-Davidson CEO Artie Starrs.

Good morning, everyone, and thank you for joining us today for our Q4 and full year 2025 results. Before we get into it, I'd like to thank our Harley-Davidson employees the HD dealer network and our riders that are listening in this morning. Thank you for all you do every day for the company living and leading our brand and culture. This marks my first full quarter as CEO. I've spent this time focused on understanding the core of our business, our people, our dealers, our riders, and the realities of the marketplace. Through extensive time on the ground, I've confirmed many of the early observations I shared last quarter. I'm confident there's a clear path to put Harley-Davidson back on the right trajectory, and I now have a sharper view of what it will take to reset the business and get to a more stable operating and financial future in 26 and beyond. This morning, we will provide more detail on the themes you heard from us on our last call as we work towards our expected strategic plan announcement in May this year. Turning to our fourth quarter results, which we do not believe reflect the full potential of this company, 2025 was a challenging year. And while some of the pressures we are facing are macro driven, others are firmly within our control and we are moving with urgency, focus and discipline to address them. Wholesale shipments and associated margins were negatively impacted by intentional actions to address elevated dealer inventory, particularly touring inventory in North America through interventions on both the supply and demand sides. During the quarter, We reduced wholesale shipments and implemented targeted promotions to accelerate the return to balanced retail inventory levels. These actions are beginning to deliver results. Rider response has been positive, with North American retail sales growth in the quarter accelerating into December, yielding early indications of improving dealer profitability. We plan to continue these interventions with discipline, as we work to optimize retail inventory, positioning the business and our dealer network for more sustainable performance going forward. That said, we're encouraged by the early green shoots we're seeing. Our immediate priorities are both straightforward and deliberate. First, we believe we are stabilizing the business by restoring dealer confidence and aligning wholesale activity with retail demand. Second, we are finalizing a strategy that we believe builds a durable platform that leans into our core and positions Harley-Davidson to return to sustainable growth. Early in my tenure, I committed to three immediate priorities, improving dealer profitability, reigniting brand momentum, and reducing costs. These commitments have not changed. Today, I'll walk you through the immediate actions. Already underway to advance these priorities, these actions are in the following areas. Restoring our relationship with dealers, improving inventory management, sharpening our customer focus with the right portfolio, leaning further into the strengths of our brand and community, and enhancing financial flexibility. Let me start with our dealer network. Harley-Davidson's dealer network is best in class, distinguished by unmatched enthusiasm, reach, and strength. While the network remains a competitive advantage, dealer health today is uneven, with some dealers facing challenges. Dealer health is not optional. and is a critical foundation for our long-term growth and earnings power. We're resetting the relationship between the motor company and our dealers. That relationship must be built on mutual trust and respect, shared objectives, shared accountability, and shared success. Healthy inventory levels and a healthy dealer network are non-negotiable. Over the last couple of months, I continued a series of roundtable discussions with our North American and European dealers. Most recently, I spent time at our European markets, including attending the Verona Bike Expo and a Hog Chapter morning meeting. The insights from these engagements were consistent with my US visits. Extraordinary passion for the Harley-Davidson brand and strong commitment to the business. Importantly, there is broad alignment around the changes required to drive sustainable growth going forward. These include healthier inventory levels, improved product mix, simpler and more effective rider engagement programs, and greater flexibility to reflect local market conditions. Drawing on my experience in franchise-based models, I know that sustained success depends on alignment, transparency, and disciplined execution. We're committed to reestablishing that foundation, beginning with immediate interventions that we expect to improve our dealers' retail performance and financial trajectory, while accelerating trust across the network. As we mentioned in Q3, we've begun to act with two quick and meaningful changes to support our dealers. First, we reviewed our fuel facility model guidelines, adjusting the scope to better balance global brand identity with celebrating local communities. Second, we made a commitment to re-evaluate e-commerce. The company's e-commerce strategy has not historically delivered the intended results. It has created customer confusion and driven excessive discounting. placing unnecessary pressure on dealer economics. We've taken corrective action in North America by shifting to a model that is intended to drive incremental dealership traffic to support motorcycle sales. In the near term, our focus is clear. Support our dealers, drive traffic to dealerships, and execute against our core business, selling motorcycles. While retail sales are still meaningfully below what we would consider a healthy run rate, The early progress is encouraging. We believe these actions are improving predictability and positioning the business for more consistent execution. Turning to inventory. On our Q3 earnings call, I was clear that inventory discipline and adapting to the realities of the current retail environment would be central to our focus. As we've dug deeper, it's become evident that the challenges are more significant than initially anticipated, and we're addressing them head on. We are aggressively addressing inventory through targeted promotional support for touring models and discipline quarterly planning by model, region, and dealership. We believe this approach allows us to align inventory with sales trajectories, account for regional needs, and proactively manage production and shipments, accounting for seasonality. The touring overhang remains pronounced and is being actively worked down through discipline interventions designed to move the product efficiently without undermining long-term brand value. In North America, dealer inventory declined 16% relative to year-end 2024 levels. Globally, dealer inventory was down 17% over the same period, meaningfully exceeding our 10% global reduction target. This represents solid progress against our priorities, and I am pleased with the team's execution and delivery. Overall, retail performance through the quarter was broadly in line with internal expectations. North American retail was up year over year, while international retail, particularly in EMEA, was softer than we expected. We expect the actions we are taking to assist dealers in moving through inventory to restore dealer health to have a near-term impact on our financial results. With that in mind, we view 2026 as a transition year as we reset the business and finalize our new strategy. I see a path to return to long-term earnings and free cash flow power of the business to the levels we know are possible. I can tell you we expect margins to be under pressure in the near term as production runs below wholesale, creating operating deleverage. These are deliberate actions that we believe are necessary to support both dealer and company profitability and ultimately rebuild the long-term earnings power of the business. As I've discussed, we are in the early stages of a reset. We've made decisive changes, and the work underway across the organization is designed to rebuild momentum. in the right way for the long term. Turning to the brand and our customer. Our leadership team is reorienting the organization around a clear priority. Our dealers are customer number one. When we enable our dealers to sell, customize, and service the motorcycles our riders want, everyone wins. I continue to spend significant time with dealers and riders, including attending a hog chapter gathering in Milan as part of my visit to Europe. The pride those members took in showing me their Harley Davidson motorcycles was contagious. It's clear our riders view their Harley as their individual motorcycle. Individual expression matters, and customization is central to that experience. We have been too lax on our parts and accessories business in recent years, and that will change. This is what our riders want. It's a critical business for our dealers. It creates more opportunities for our world-class service technicians. and it is core to what Harley-Davidson has always stood for. Going forward, our focus in this area will have two parts, designing and building motorcycles that invite Harley-Davidson customization and ensuring our supply chain can support that demand quickly and reliably. Brand storytelling has always been essential to what makes Harley-Davidson, Harley-Davidson. At its core, Our brand celebrates riders and the communities they create. In recent years, our work has been too serious and at times too dark. That's not who our riders are. When they ride and gather, our riders are joyful, passionate, and community creators. I saw this firsthand at an 80th anniversary celebration for a dealership outside Paris, France just a few weeks ago. Riders shared stories of journeys they'd taken together, including one who proudly told me he had ridden all the way to our factory in York, Pennsylvania, and was wearing his York PA Harley-Davidson gear while standing in Paris. You'll soon see more optimistic, joyful brand work from us, advertising that celebrates our community in a uniquely Harley-Davidson way. Turning to product, to better align aspiration with accessibility, we are actioning more breadth and flexibility in our portfolio. That means being honest about where pricing and portfolio choices have limited our reach and making deliberate choices to widen the funnel in our core. My own interactions with dealers and riders over the past four months, in addition to customer research and recent retail trends, validate what our riders want. The look, sound, and feel of a Harley-Davidson motorcycle coupled with the ability to customize their Harley to make it their own. The used market continues to reinforce the power of the brand, and a strong desire for customers to purchase our products, but at a price that is more aligned with today's economic realities. In fact, as we look at used auction activity, we feel enthused about recent demand trends and the positive impact they're having on used values, especially in Harley-Davidson Core Softail models. What's clear is that the portfolio actions taken over recent years have put the brand out of reach for some existing and potential riders. To win, it's clear we need to sharpen our product focus, not only creating the highest quality motorcycles that our riders want to ride, but doing so with a price in mind. We need to ensure that these are products that our dealers are excited about and able to sell at a profit level that works for them and for us. Onto the team and our org structure. Execution requires the right team and structure. We've made targeted leadership team and organizational changes to strengthen our capabilities across product, supply chain, marketing, technology, and brand. We've added back new perspectives and welcomed back proven leaders with deep knowledge of Harley-Davidson's rider culture and community. Importantly, Harley-Davidson should be a great place to work as well as a great business. Strong corporate culture isn't just good for employee morale, it's good for business. Rebuilding our culture and identity as a Milwaukee icon truly matters. My direct reports are all working from Milwaukee at our Juneau Avenue headquarters, and we will be formally reopening the office later this quarter. By going back to the bricks at our Juneau Avenue headquarters, we are not only reigniting the cultural beat that has defined this company for over 120 years, but with these changes, we are improving decision-making speed, cross-functional collaboration, and critically, accountability. I'm particularly pleased with how much more agile, nimble, and speedy our leadership team is becoming, working shoulder to shoulder in Milwaukee. I'm excited to get our teams back to Juneau in the coming months. It's an inspiring place to work. Lastly, I'll touch on the financial actions we are taking to reposition the business for success. We're conducting a rigorous end-to-end review of our cost base and operating expenses, supported by third-party specialists. Our current corporate overhead, manufacturing capacity, and overall operating expenses are built for materially higher volumes than today's demand, and we will be addressing this mismatch head on. We will share more details in May. However, on top of previously announced targets, we anticipate at least $150 million of annual run rate savings that will impact 2027 and beyond. In Q4 2025, We renegotiated and funded the term loan with Livewire, reducing the principal to $75 million. Livewire is now working diligently to attract its own sources of capital to continue to finance its operations and future plans. We remain excited about Livewire's newest motorcycle, the Honcho, soon to be in market later this year, well aligned with the evolution of the EV motorcycle category toward smaller mini-motos. Turning to HDFS, the recent transaction has delivered meaningful capital benefits. We now expect to be able to run the HDFS business with less capital than has been tied to this business historically. With these changes, we plan to take HDFS class-leading returns and deliver an even higher ROE than we did historically. And as HDFS's asset base rebuilds over the coming years, we expect to get back to earnings levels that run below historical levels. Going forward, HDFS will operate with significantly lower capital commitments and with funding support from two trusted partners. HDFS continues to be a strategic asset for Harley-Davidson and a critical enabler for our dealer network, and we will talk more about HDFS strategically during our Q1 earnings call in May. While a key priority remains returning excess capital to shareholders, We are currently evaluating the timing of our share buyback initiatives. In the near term, we expect to be measured in our approach to share repurchases while we finalize our strategic plan that we expect to announce in May. Before I hand it over to Jonathan, I want to reiterate that Harley-Davidson has an iconic brand, a loyal community, and a dealer network unlike any other. We are taking the hard, necessary steps to stabilize the business and rebuild trust. which we believe will restore our long-term earnings power. The work is underway, execution is improving, and we are committed to delivering results. Thank you, and now I'll hand it over to Jonathan.