Q4 2020 Harley-Davidson Inc Earnings Call

Okay.

And then.

And as planned.

And.

Thank you Matt.

[music].

Ladies and gentlemen, thank you for standing by and welcome to today's probably gave us and 2024th quarter and Investor Analyst Conference call.

At this time all participants are in a listen only mode. After the speech presentation, there will be a question and answer session.

The question, Trey and that's fine, but most of them.

And they need the press star and the number one on your telephone keypad, yeah huge of.

Thank you.

Keep your questions to one of the time, if you would like to ask another one please jump back and the Q. If you require any further assistance. Please press zero.

Please be advised of today's conference call is being recorded I would now like to turn the call over to Shannon Burns manager of Investor Relations. Please go ahead.

Good morning, everyone. Today, we are webcasting the slides for this call you can also access the slides on Investor day at Harley Davidson Dot com.

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 on our latest earnings release and filings with the SEC Harley Davidson disclaims any obligation to update information on this call. Joining me. This morning are CEO Europeans sites CFO Jean together.

And our Chief commercial officer, Larry Hund will also be joining us for Q&A the okay.

Let's get started.

Thank you Shannon I would like to welcome our shareholders the financial community dealers employees and all of all of valued stakeholders, who are joining us today.

We've extended todays call in order to first review all of 2020 of financial results, then discuss our new strategic plan the hardware.

'twenty and 'twenty was an extraordinary year for most companies with outside the challenge is not seen before and our lifetime.

Most of those challenges.

Oh of T manage COVID-19 impacts keeping community well being at the forefront protecting liquidity and achieving significant cash savings.

We also successfully overhaul of the entire company through the rewire.

As a result, we expect to deliver ongoing gross cash savings of approximately $115 million starting this year.

Just to name a few additional results of the rewire we.

We streamlined our planned product portfolio about 30%.

Reset motorcycles motor year launch timing closer to the start of the riding season.

The 39 markets with shopping focusing on the highest potential markets.

Optimized our dealer network, reducing the total network by approximately 160 net dealers.

And our approach to supply and inventory management and health tightened dealer inventory of about 59% driving significant increases and key value metrics.

We substantially reshaped and improved all aspects of the company setting us on the solid footing to deliver the next phase of our transformation.

The entirety and pull together and put forth tremendous effort.

We put in place the right leaders structure and strategy to perform at a much higher level.

Throughout the year, we also made initial progress towards enhancing desirability.

I'll talk more about this later, but for now I will ask Gina to review our financial results for 2020 Gina.

Yes.

Thank you yoga and 20.

2020 was indeed, an extraordinary year for Harley Davidson, we took significant actions to reset the company for future success through our rewire actions and our pandemic response.

Our fourth quarter results reflect the continued execution of our deliberate supply and inventory management approach as well as the impact of our new model year reset from Q3 to Q1 each year.

With the strategic shifts our Q4 revenue and margin were down significantly versus a year ago, but exceeded our internal expectations for the quarter.

Fourth quarter of results were also impacted by $44 million of restructuring costs and brand investments to support the reset and new model year launch timing.

Financial services had another strong quarter with operating income of $77 million, which is up 31% driven primarily by a lower provision for credit losses.

On a full year basis total revenue was down 24% driven by the motorcycle unit declines and we delivered consolidated operating income of $10 million, resulting in full year earnings per share of one cent.

Adjusted earnings per share is 77, and 10, which excludes the impact of restructuring and tariffs.

Rewire of restructuring charges totaled $130 million for the full year as a result of these restructuring actions, we reset our cost structure effectively lowering our cost base by approximately $115 million.

In Q4 and for the full year global retail sales and market share of new Harley Davidson Harley Davidson motorcycles were down compared to last year, reflecting tight retail inventory and the shift and timing of your model your lunch.

Across the dealer network retail inventory of new motorcycles was down 64% and the U S and 51% internationally.

We continue to see the positive impact related to our inventory and supply management efforts. These actions are driving fundamental improvements across our business and are creating value for our dealers and customers through stronger transaction prices for both new and used motorcycles and a successful network of dealers.

Motorcycles segment revenue was down 39% and Q4 on of 48% decrease and motorcycle shipments versus 2019 related to the impact of the model year changeover, and our supply and inventory management efforts.

The impact of motorcycle mix was slightly negative and the increased contribution from touring was offset by the decreased contribution from the cruiser segment.

Complementary business performance and the quarter was anchored by a 13% increase and parts and accessories revenue due to strong used motorcycle sales and the quarter.

On a full year basis revenue was down 29% on a year over year motorcycles shipment decline of 32%.

And unfavorable mix shift of motorcycle models with the partially offset by higher pricing and fewer sales incentives in line with our ongoing approach to supply and inventory management.

Moving on to margins absolute gross margin was down and the fourth quarter and full year due to lower shipments product mix and unfavorable foreign currency exchange. These headwinds were partially offset by favorable raw material pricing and Lawrence incremental tariffs within manufacturing.

The motorcycles segment finished with an operating loss for both the quarter and the full year as we navigated COVID-19 and executed the rewire actions needed to properly position the company to execute the hardware plan.

Marketing investment was up $20 million in Q4, as we invested ahead and to support the new model year launch in early 2021 for.

And for the full year, we aggressively manage costs and realized $126 million of SG&A savings.

Financial services segment operating income in Q4 was $77 million up over 30% compared to last year.

Net interest income was down due to higher average outstanding debt as we proactively manage liquidity during the ongoing pandemic.

The Q4 total provision for credit losses was $36 million favorable to last year with about half of the decrease due to the actual credit loss of performing.

Retail credit losses continued to be down versus last year as a result of lower delinquencies driven by a high volume of Covid related loan of payment extensions for qualified customers earlier in the year as well as improved use of motorcycle values at auction.

The remaining change and the provision for credit losses was driven by lower finance receivables and Q4, partially offset by a smaller increase and the overall reserve rate as compared to last year we.

We believe the allowance for credit losses appropriately reflects the company's outlook on economic conditions and represents estimated lifetime losses in our portfolio at the end of the year.

Operating expenses in the quarter, what were unfavorable versus prior year due to primarily restructuring charges.

Despite the challenges of 'twenty and 'twenty the financial services segment delivered a very solid year, new retail originations in Q4 were down to one 5% versus last year, but market share for new U S. Retail financing remains strong new retail motorcycle originations were down on lower new.

Retail sales of inventory availability, partially offset by higher used motorcycles originations.

For the year H D. F. S finished just under $3 billion and loan originations and with the historically strong market share at nearly 68%.

At the end of the quarter H D. F. S had $2.59 billion of cash and cash equivalents and $135 billion of liquidity available through bank credit and conduit facilities for a total available liquidity of $3 $94 billion cash.

Cash and cash equivalents remained elevated as we prudently hold cash and the face of ongoing economic uncertainty.

H D. F. F continues to manage its debt to equity ratio between five and seven times and well within the debt covenants of no higher than 10 to one.

H DFS is retailed 30 day, plus delinquency rate was 3.18% down 121 basis points compared to the fourth quarter of last year. The retail credit loss ratio was also favorable at 1.38% of 62 basis point improvement over last year the.

The favorable delinquency performance is largely due to a high volume of Covid related extensions on retail loan payment due dates during 2020 the.

The vast majority of the extended accounts have made at least one payment after the expiration of their extension period, and we do expect the joke that the delinquency rate will normalize over time.

Shifting back to Harley Davidson, Inc. Financial results, we ended the quarter with $3.26 billion and cash and cash equivalents as we maintain high liquidity through the pandemic.

Full year operating cash flow was $1.18 billion up 36% over prior year, demonstrating the positive effects of the rewire despite of challenging year and key.

Key drivers of the improved cash flow were lower inventory levels and the impact from wholesale financing.

Additionally, we tightly managed our capital expenditures as part of our efforts to preserve cash, finishing the year down $50 million versus 2019.

And finally, the company recorded an income tax benefit during 2020, driven by a pre tax loss and favorable discrete income tax benefits recorded during the year.

And now I'll turn it back to yoga, and who will take us through our five year strategic plan.

Thank you Gino.

Now, let's look forward and talk about all the hotwire five year strategic plan that will guide the Harley Davidson into the future.

It's been the 11 months since we started this journey together as our world, what's gripped by the pandemic.

We've successfully completed the rewire comprehensive playbook across all aspects of our business to drive efficiency speed and focus that we believe will yield significant results.

We've also conducted the rigorous strategic review of leading to the development of the clear path for the future the hardware.

This would be powered by HD number one of high performing when the culture based on 10, clearly defined leadership principles.

Oh of hardware and strategic plan is rooted and desirability.

Our ambition is to enhance our position as the most of this out of a motorcycle brands and the world.

Desirability of the motivating force driven by emotion.

Harley Davidson has long been associated with and igniting desirability, it's and our DNA and it's and embedded in our vision and just at the heart of our mission and it is part of all of 118 year legacy.

Done right Harley Davidson's desirability possessed the value of our customers purchases based on.

The brand beyond our writers and ensures loyalty and drives engagement.

Our strategic ambition for desirability, and therefore very simple.

Design engineer and advanced the most desirable motorcycles and the world the reflected the quality innovation and craftsmanship.

Bill the lifestyle brand valued for the motion reflected and every product and experience for riders and non riders alike.

And focus on our customers delivering adventure and freedom for the zone.

Desirability of starts with the most coveted motorcycles and the world machines that are the embodiment of innovation and evolution.

And then extends across our complete offering parts accessories, and general merchandise and financial services that complement and enhance the riding experience and define the holiday dates and lifestyle.

It is our ability to also reflected and world class go to market brand and marketing experience that build awareness excitement and commitment with an elevated brand voice and the digital focus on the customer and the journey.

And finally by building more opportunities to broaden our connections through the marketplace that becomes the leading destination for all things motorcycles.

Driving the diverse experiences and continuing to define motorcycle culture.

We believe Harley Davidson is uniquely suited to the lead across all aspects.

We are committed to this our ability as a framework for our operations and our business and are tracking our progress with the brokers with the comprehensive dashboard.

This will include inventory levels, and the price gap between retail and MSRP and between new and used motorcycles.

The priorities of all of Hotwire, a strategic plan that builds upon the Saar ability.

We intend to one <unk>.

Invest and our strongest motorcycles segments that drive profit to selectively expand into and redefine segments, where we have of winning offering.

Three and invest in innovation and the electric market, which would be a critical part of all of future.

Four grow our complementary businesses, both in product and the lifestyle.

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Enhance and customize the Harley Davidson experience for all customers providers and non writers across all steps of the customer and purchase journey and six prioritize inclusive stakeholder management and how we think about people planet and profit.

I will now provide some context around each priority.

Through the re why we streamlined our product portfolio.

The hardware play and reflects the clear alignment on the focus of our time and energy of catch it by 72010 construct with the lion's share of focus and all the stronghold segments of touring large cruise and <unk>.

We maintain an enviable position that's share leaders in these segments that are the most attractive with the largest profits.

We intend to both defend and grow these positions, where we're leading to power profit, but the power of profitability.

As we talk about growth and all of a stronghold segments I must address our position and the health of the overall market.

The data makes it clear that the segments have demonstrated steady aggregate demand customers remain engaged and willing to purchase Harley Davidson and bikes.

The two distinct parts to this market, new bikes and used bikes, both of which present opportunities, which we will pursue.

Our approach to catch up growth and all of a stronghold segment is twofold and laser focused.

Inspiring our most loyal customers to upgrade to exciting new offerings and choose Harley Davidson and if the additional of bikes.

And compelling new customers and ride us to choose holiday Davidson.

And new bike that provides novelty and innovation of way of appropriate for vast circumstances of used bikes that gets them into the holiday family and the opens new revenue opportunities.

We believe these actions will deliver solid margins by driving the reengagement and repeat purchase while bringing new customers into the brand and our core segments.

Great and compelling reasons for repeat purchases is therefore key.

We will deliver three inspirational products that live up to our vision.

Turing and large pools of customers will see differentiated yet true to a holiday products that motivate them to buy a new models.

We are investing and design technology and performance enhancement that pushed the boundaries, while maintaining a balance between flexing and cutting edge designs.

We also plan to extend and expand the opportunity to do right for new and existing customers by providing comfort ease of use and modern styling and on our strike models.

We believe there is untapped potential for traditional types of where we lead the industry.

Just don't expect to see too many product details of ahead of time as we've said before we're keeping our cards close until we launch on new bikes.

Returning our focused on stronghold categories is only the first part of our strategic plan in line with 72010, and we will also selectively focus on the set of opportunities that we believe deliver on two critical conditions.

The attractive and profitable segments that deliver a balanced combination of volume margin and potential.

And they are well aligned with our product and brand capabilities with the clear path to leadership.

By narrowing our focus on those opportunities that meet these criteria, we make our intention and clear we will be in them to win.

Supported by the right allocation of time and energy balance with the right investments and product brand and go to market capabilities.

This winning combination is evident and Pan America, and exciting new product that we believe will transform our market participation and provides the ability to compete effectively in the new space.

Adventure touring and the largest segment and many European markets with both attractive margins and high growth.

It's also a large largely untapped segment in North America, and we are excited by the potential at the Amdocs for Harley Davidson.

The segment is a natural fit.

With Pan America, we feel the adventure touring and are expanding the language of the Harley Davidson touring experience deeply rooted in our history.

I invite you and I invite you to join US on February 24, the Pan America review.

As part of our profitable expansion within the segments. We also plan to reinvent and increase profitability and middleweight cruises.

A new Revolution MX engine provides the versatile platform.

Neighbours expansion across the segments.

This will provide us with what we believe is the highly competitive and profitable path and a segment that expands our relevance to a greater customer set beyond all of our stronghold offerings.

We will have the first glimpse of this also on the 22nd.

The rewire radically simplify the our geographic footprint and identified the markets that would make the most of all of future, including the U S.

<unk>, which is Germany, Austria, and Switzerland, Japan.

Japan, China, and Canada, France, UK, Italy, Australia, and New Zealand.

We've taken the next step two of driving these markets to full potential by identifying the right product and go to market approach for each and in many instances, bringing in new leaders with the right experience and capabilities.

These markets on the most profitable which is nowhere more evident than in our commanding presence and the single largest and most important motorcycles modular and the world the United States.

They also include high potential geographies, most notably China, while product and brand of well respected and highly desirable.

This does not represent turning our back on the rest of the world and the potential of emerging markets, but we have and understanding that the more focused investment with the right capabilities and approach has a clear path to success that this aggregated volume across the globe, which get us the product fit of market strength.

As part of our 10% focus we intend to continue to test further avenues for long term growth such as premium low displacement via partnerships and actively evaluate other opportunities.

We're also leveraging a series of choices made and the rewire the support and empower of stronger product segments that preserve that is our ability and that stay to stay true to the 72010 time and energy allocation.

The streamlined product portfolio that allows for more focused investment from development to the frontline sales.

And deliberate management of some supply inventory and did not demand dynamics in the market and the rational use of promotions.

As I've said before we aim to deliver enough fuel for our growth, but will not chase volume portfolio and sake.

Optimized operations and in particular, our supply chain that either enable cost efficiency and transform our capabilities and critical geographies like EMEA.

With the goal of closing the regional profitability differences.

And the renewed focus on Craftsman chip and pride and manufacturing as well as greater responsiveness to the customization and choices that meant on most of our customers.

Our combustion motorcycles will drive our business for years to come However, electric motorcycles are important to our long term success.

We are fully committed to and passionate about leading and electric motorcycles.

We are proud to be the pioneers in this space through live wire widely regarded as the leading electric motorcycles and the world.

Our intent is to remain at the forefront of electric through investment and technology, while we recognize the long term horizon required for ground breaking developments in the segments, we want to compete and.

The nature of electric calls for unique and game changing approach and I'm excited to share a few details of this with you today.

We will be focusing our electric strategy through a separate division with the leadership team is solely dedicated to developing the most desirable electric motorcycles and the world.

Our plans for our product and go to market would be grounded and the expectations of a clear customer segmentation with cutting edge developments distinct brand focus with innovative digital and physical experience on the path to purchase.

The creation of the separate division will allow full autonomy to EV development.

And the business units to behave with the same agility and speed is the tech startup.

Still leveraging of the support expertise and oversight of the broader organization, allowing for cross pollination of innovation and the electric with combustion product development.

This path will also create the option for partnerships to achieve synergies for future developments.

Electrical forged the weight and the new sector and help lead the long term transformation of the company.

You will hear more later this year as we execute on this vision.

We've always been more than the machine and our related businesses are more than just complementary.

Parts and accessories general merchandise and financial services are all important pillars of our future success as the global lifestyle brand.

In addition, HD and <unk> is a strategic asset the dry solid Davidson success as the company and we intend to expand on that internationally.

This untapped potential of these businesses to grow our customer base and adds to customer lifetime value.

Our plan and emphasizes accelerated growth and profitability of these important businesses.

And we expanded the efforts to drive attach rates at more points throughout the purchase journey, including a digital first path to purchase and.

And improved offerings and stronger execution based on the clear omni channel strategy.

We create products and services and experiences that inspire our customers to discover adventure and leave the Harley Davidson lifestyle.

We intend to regain our role as the destination for high quality parts for all of our writers.

Stepping into the vast universe of of used motorcycles.

We will focus on the categories the best enhance the value of our motorcycles for riders.

Customization as part of our heritage we plan to increase point of purchase Accessorized nation.

Deepening the commitment to riding and our brand digital investments will simplify and enhance the experience the target purchases of new and used harleys and more points along the journey.

On the Davidson riding gears authentic the motorcycle the culture.

We plan to build brand commitments of general merchandise by growing and our strongest most desirable categories, including riding gear leathers and sportswear.

We also intend to enhance our emphasis on customers who are drawn to the brand by expanding beyond our traditional categories and retail channels to further tap into lifestyle opportunities.

Our <unk> business has a strong track record of delivering growth and profitability, but we believe there is more room to build globally and leverages the potential.

We intend to expand <unk> into the preferred choice for all Harley Davidson riders, but building digital capabilities of rival the innovators and financial services.

This includes the creation of of pre owned Harley Davidson program called Harley Davidson and certified.

This program is designed to lead our industry and reach new customers and partnership with our dealers to enhance the overall experience, while also supporting growth and parts and accessories and general merchandise and the HD vest businesses.

There's also opportunity and how we bring our iconic products to our customers.

Our goal is to build an ecosystem of experiences and retail opportunities that makes us both of the premier digital and physical destination.

Our plans include World class brand content on the on the ore enthusiasts masthead and the new take on our loyalty programs relevant content tailored to audiences driving traffic and awareness of our brand and sharing experience of our writers and fans.

The redesign set of experiences that bring together our diverse communities and enhanced the holiday of this and lifestyle driving engagement and the world class marketplace for all of the holidays and businesses driving revenue.

We believe we of the unique ability to succeed given our highly engaged customers and new ones that we will attract to the brand.

No other motorcycles brand even comes close to a holiday of this in this regard.

Our dealers our partners and the hotwire.

Through the Rewire, we jointly took action to strengthen and optimize the dealer network and drive efficiency and better execution.

And if it's that will continue into the future.

We created new incentive structures that align company and the local it's more closely focusing on competing with other brands rather than rather than within our network.

We've invested significant resources aimed at improving the networks overall profitability as we believe that the powerful network of successful deal. It is essential to delivering the best Harley Davidson and experience for our customers.

As we execute the hotwire and we look forward to our continued partnership leveraging our dealer capabilities to deliver industry, leading experiences supported by strong at scale digital capabilities and marketing investments.

The hotwire puts our customers at the center of our product experiences and our investments.

We use the word customer very deliberately with the rider is locked thousands of miles is new to motorcycling owns the used or new bike is deeply invested in the lifestyle of simply loves the adventure freedom of the brand represents.

This inclusive customer focus whatever the relationship to Harley Davidson is a powerful driver of the hotwire.

Our hand in the hand view of our customers is reflected in how we think about them and their engagement with the brand.

Over half of our new bike purchases I experienced riders of different stages of the engagement of Motorcycling.

These customers on enormous assets with high lifetime value and repeat purchase patterns.

And also very important to our profitability and the hardware into deepen the connection to holiday.

On our remaining customers out of either new to Motorcycling are connecting through the brand as the lifestyle.

Providing of lifeblood of growth and future years.

Retaining them expanding share of wallet and inspiring them into deeper stages of the journey is also important.

Let me also address an important point around customers much has been said about the aging of Motorcycling and our riders.

Our data suggests there's the more nuance story to be told.

Our customers of our diverse joining motorcycling in the branded all life stages and ages, including younger age groups.

While we automatically skew towards middle aged riders given the segments. We are in our customer <unk> Pro shop profile is very similar to that of our closest competitors.

Our brand lends itself of cost to customers, who aged into and then stay with hardly in line with distinct psychographics that make our brand appealing to them.

Our improved customer segmentation and efforts to reach audiences through multiple digital channels with relevant content allow us to connect with people of all age groups that were targeting.

Our planned product offerings will also help us expand our reach across the wide age range.

Significantly enhanced digital efforts and products like adventure touring and redefined middle of the weight bikes. For example on aimed at attracting riders and inspiring customers, who further diversify our profile.

In line with this new perspective on the richness and nuance of our customer our marketing investments will be focused on elevating and authentic powerful and trendsetting brand voice that speaks to each customer segment, specifically tailored to our core markets.

The Quito of hotwire approaches of recognizing different needs and expectations of each segment across the consumer experience and purchase journey.

Ensuring each touch point is tailored to what they want and how they want to engage with us.

From an omni channel purchase journey into a thriving community of the rewards loyalty engagement and writing to efficient service experience and personalized outreach. We are building upon the vision of customer experience designed to lead the industry.

Delivering on this vision for our customers will rely on the deeper knowledge and understanding of our existing and new customers powered by a more coherent and holistic view of who they are through the power of the integrated data.

Our goal is to deliver a seamless interaction with our customers.

<unk> and personalizing, the individual and collective experience with Harley Davidson.

Ultimately the success of heartworm and being the winner and all things motorcycles will be based on keeping our customers and the personal experience with Harley Davidson at the forefront of our efforts.

I've spoken today about our product and experiences our ambitions and our focus on our customers.

I've also noted the importance of our diverse community to our success and there are many stakeholders included here.

Inclusive of stakeholder management is the unifying theme for how we will think about our role in society, giving us purpose beyond just financial performance.

And this regard embracing and promoting inclusivity across every aspect of our community will be central United We were the right.

Inclusive stakeholder management is considered at of all of people planet and profit is all three of deeply embedded in the past and future success of our brand and company.

We strive to deliver long term value to all stakeholders through innovation that learns from yesterday challenges today and rewrites tomorrow.

Evolution, two shared prosperity for all our stakeholders through inclusive sustainable and fair markets.

And emotional and our efforts to enhance our customers' lives of providing adventure connection to the world and the community around them.

Here's how we're thinking about people planet and profit.

First people and.

Luis dealers customers suppliers investors and society.

Realizing our best sales by importing the spirit of the winning HD number one culture and community by creating a high performing engaged and diverse workforce, where we are attracting and retaining the talent we need to win.

Making Harley Davidson and synonymous with a highly desirable inspiring and safe workplace from our offices to our factories by evolving our spaces and how we work.

Our efforts also include fostering an inclusive and welcoming of dealer network and the diverse supply base focused on ethical sustainable and equity based purchasing and sourcing practices.

When we think about planet. It includes our role and sustaining the planet by establishing a path to net zero environmental impact while delivering on the Harley Davidson mission.

And profit through our focus on desirability, we plan to drive profitability and shareholder returns.

We also want to closely align the rewards of our employees with our shareholders and our offering and equity ground to approximately 4005 hundred employees at the start of the hardware.

All employees from factory workers to executives with benefit when the company succeeds.

With this expanded approach everyone wins.

This is the first and the history of our company acknowledging the important contributions of everybody and our workforce and making Harley Davidson and successful.

And finally, a few words to close out my remarks on the hotwire.

And I hand, it over to Gina to discuss our financial outcomes.

Our intent is to build trust and Harley Davidson and confidence and what our new team is able to achieve.

And the past years, we've over committed and under delivered.

We are now is committed to setting realistic expectations, and we know that execution of everything.

As the Rewire has shown on our new HD number one culture will define the new level of accountability capability performance and competitive spirit.

We will continue to develop and drive that ethos through the hotwire and beyond and when shell and we'll chat and our challenge the team to strive for the highest performance to unlock upside.

And now Gina will take you through our financial targets.

Okay.

Thank you Jochen.

In line with our commitment to set realistic expectations and target profitable growth. We believe our five year targets will demonstrate continued progress through 2025 and several critical dimensions and they are a step change from our recent historical performance.

Through 2021 to 2025 determined the hardware our targets are as follows.

For the motorcycles segment, we are targeting mid single digit annual revenue growth with solid growth expectations, and motorcycles parts and accessories and general merchandise.

We also expect the motorcycles segment operating margin to show steady improvement from 2019, our most recent comparable year driven by increased efficiencies across our operations and leverage within SG&A as we maintain a lean cost structure, we will continue to invest back into the business and brand.

And have included the anticipated investments and our updated margin profile.

In financial services, we are targeting targeting operating income to grow double digits 2021 through 2025 behind growth and the motorcycles segment and optimization of our digital platform.

We expect capital spending to be between 190 and $250 million each year behind defined hardware investments.

This includes the capital required to innovate across our core product families. And also includes initial investments supporting the separate EV division as well as capital needed to build out and enhanced digital ecosystem.

Finally, we are targeting low double digit EPS growth 'twenty, one 'twenty 'twenty, one through 'twenty and 'twenty five.

As we look at the motorcycles segment operating margin through 2025, we are targeting of steady year over year improvement leading to healthier margin levels and our recent past.

As I talked about earlier the negative operating margin in 2020 was primarily driven by the impacts of Covid and the restructuring actions and cost incurred as part of the rewire.

As we look forward, we believe our steady margin gross will be fueled by focus on our most profitable motorcycle categories optimization across our operation outsized growth of our complementary businesses and maintaining a lean and SG&A cost structure.

The hardware will require significant investment, most notably product innovation across combustion and electric brand investment and enhancement of our digital capabilities.

And as I reflected in our current margin projections.

Turning to cash allocation, we have two priorities moving forward.

First we will fund our hardware of plan and capital and brand investments that we believe will drive our expected operating income and double digit EPS growth through 2025.

Our second priority is to reward shareholders through dividends, starting with the Q1 cash dividend of <unk> 15 per share that we announced in our press release this morning.

We plan to reserve remaining cash for high return investment opportunities to accelerate growth and unlock upside within the hardware of framework at this time significant share repurchases are not planned as we prioritize cash for these top two priorities.

Our objective is to deliver shareholder returns that are commensurate with our industry and the results of our business. While also recognizing that seeding the right investments for future growth, we will provide long term value for our shareholders beyond 2025.

For the first year of our hardware of plan execution, we expect to continue to manage through the ongoing uncertainties brought on by Covid and the impact of our revenue and supply chain our guidance for 2021 is as follows.

Motorcycles segment revenue growth between 20, and 25% versus last year with operating margins of 5% to 7%, which includes the $115 million of cost savings benefit delivered as part of the rewire initiatives.

Additionally, we expect to incur approximately $20 million of restructuring charges early in 2021 related to the rewire actions.

We expect total financial services operating income growth between 10, and 15% versus last year.

And lastly, we are planning for capital expenditures between 190 and $220 million.

And now I'll hand, it back to you okay.

Thanks Gino.

Let me summarize.

And we're building on the is our ability and we will continue our cultural journey of HD and number one committed to being a world class team leadership and talent that is fully aligned with our unique vision and mission as the company and brand.

Oh of hardware plan is built around six strategic priorities.

Invest and our strongest motorcycles segments that drive profit.

Electively expand into and redefined segments, where we have of winning offering.

Invest and the electric market and the innovation, which we believe is critical is of critical part of the future of our business.

Grow our complementary businesses, both in product and lifestyle.

And the Hearts and customize the holiday builds and experience for all customers riders and non riders across all steps of the journey and finally priority is inclusive stakeholder management and how we think about people planet and profit.

Maintaining focus on the six strategic priorities, we believe will deliver profitable growth and solid returns.

Our priorities of bold and I would challenge the team to strive for the highest performance to unlock further upside within the hotwire.

This is an exciting time and opportunity to transform and one of the most recognized and iconic brands and the world with the new strategic plan and new leadership team.

We're looking forward to sharing more about the hardware playbook as we execute our plan now.

Now, let's take your questions.

Yeah.

Thank you noted you asked the question. Please press star one on your telephone keypad Covid placed into the queue. We ask that you limit yourself to one question. If you have any further questions. Please press star one again to reenter the queue and first question comes from James Hardiman from Wedbush Securities. Your line is open.

Hi, good morning.

But lots of digest here, obviously really appreciate all of the the qualitative color around the new hard wire plant I think all of the.

Goals and make a lot of sense of the street.

I wanted to dig in and maybe into some of the quantitative aspects of this.

You've given us and pretty good guidance for 2021.

I do the simple math here and I guess basically and the low $2 of of earnings range.

And then we have the through 2025 guidance, which is the low double digit earnings, which basically gets me into the mid $3 range low to mid $3 range, which is.

Basically what you did and in 2019.

I'm trying to sort of make sure I understand that the.

Essentially the longer term plan as is.

Understandably conservative and I get the idea of of maybe under promising and over delivering.

But it seems like the goal here is basically where we were last year.

We're on sort of off on on some of that Matt.

Yeah.

No I think that your math is getting you to generally the right the right spot and what I'd say in terms of where we've been historically has come as a company of setting very high expectations and then not delivering on those so we wanted to purposely set of baseline that we.

And are committed to we're confident in delivering and it does yoga and sat and his his remarks finding ways to over deliver on that on that guidance, but right.

Right now we are we are planning for kind.

Kind of how you how you said it to get to get back and slowly build conserve and kind of nice growth year after year after year of sustainable model.

Got it and then just maybe a little bit of a clarification and the hardware plan.

And I forget the wording, but it was basically too.

Improve consistently improve operating margins.

Versus 2019, but then it actually seems like 2021 operating margins.

Step back from 2019, and my thinking about that the right way of room on maybe mixing GAAP or non-GAAP and some way, but have you guys doing sort of of mid 9% operating margin in 2019.

Non-GAAP versus versus call it of 5% to 7% for 2021 got it and then Mike.

Yes go ahead.

Yeah on a GAAP basis, what I would say is that we will we will be improved versus our 2019 levels.

And it and then slowly building year after year.

Through the course of the hardware plan.

Slowly improving GAAP and so the 5% to 7% is the gap for both currently and 19 and 2021 and sort of on go forward basis.

Got it.

Excellent. Thank you.

And your next question will come from Shawn Collins from Citigroup. Your line is open.

Yeah.

Great.

And Gina and Sharon and good morning, nice to speak with you.

Good morning.

Hello.

Hey, guys.

So I wanted to ask.

I know you have your new product launch.

Just I think a week and a half ago and just wanted to ask what the reaction to that has been so far if you could talk about that.

Sure. This is Larry on Sean.

Just a quick comment on.

Okay.

Sean This is Larry and just a quick comment on on the 'twenty. One launch good response from customers. Good response from dealers. So far so so we are pleased with that.

And then obviously looking forward to the reveal of Pan America here and.

A couple of weeks.

Great great.

And thank you for the time and insight.

Yeah.

And your next question will come from Gerrick Johnson from BMO capital markets. Your line is open.

Good morning he.

And he was talking about investing more on the core Tory and large cruisers, but at the same time, Inc.

Go into the compelling new riders to choose Harley.

How do you plan to do that without the vesting of smaller deposits.

Placement breaks I understand the Pan American but.

Are you no longer committed to see the sportster segment.

And it seems like to get new riders and we'd have to learn of them on the other brands, which seems a little bit more difficult and then giving them at the entry level system to discuss more.

And depth of how you plan on bringing the riders into your ecosystem. Thank you.

And as I.

Said in addition to touring and large cruisers. They are the opportunities as part of our 72010 construct and the 20% includes entering new segments and expanding profitability and the existing segments. So that the new segment would be adventure touring as an example, and the existing segment would be mirrored way cruises, which would include sports the.

And as I also said I believe of the 10% includes us looking at premium and low displacement.

And in markets, where we see an opportunity primarily through partnerships. So all of these segments are critical segments as part of the hard way of going forward and and should enable us to bring new riders into the sport before the end to touring and large cruisers.

Alright, thank you.

And your next question will come from Craig Kennison from Baird. Your line is open.

Hey, good morning, Thanks for taking my question as well on the certified pre owned program. What are the economics of that CPO program and are there any direct revenues for Harley Davidson and there is really.

Is it just a function of kind of indirect benefits that you or your brand.

That's from higher used prices and then of course dealers benefit from being able to sell.

So bikes in the network.

But the benefits direct and indirect obviously on first of all the the pre owned program.

We'll be professionally inspected verified mechanically sound backed by 12, one limited warranty.

And and those are exclusively available at participating Holly Davidson dealerships. So that's the benefit of the dealers and there is obviously, it's more of a mockup included four HD for S that will enhance our overall customer experience and support the growth of HD of as a complementary business. So we see that as it further the driver of profit.

The ability for HD vest as well.

And just a little bit of background you know the total park of used Harley Davidson motorcycles. If you look at the entire unit.

Ecosystem is essentially 3 million motorcycles with about a third being seven years of older. So we see that day is a great opportunity with the focus on.

On the program that will certify bikes that are no older than five years and no more than 25000 miles and so there is a focus and those customers we believe the high.

At the highest potential to also.

Get them engaged and new motorcycles and the future and it also is the competitive move because we are the only ones to our dealerships that can actually certify those motorcycles and cycles, which should be in the addition of benefit for our customers to come to Harley Davidson dealers and come to Harley Davidson, rather than going to anybody else, who might service and Harley Davidson motorcycles.

Got it thank you.

Your next question will come from Jamie Katz from Morningstar. Your line is open.

Hi, good morning, and.

And you can elaborate a little bit on the 'twenty 'twenty, one and revenue growth for motorcycles and whether you can maybe buy stocks out between volume and price.

Expectations. Thanks.

Hi, Jamie at this time, we're not giving out that guidance, so where we're giving the guidance of 20% to 25% revenue growth off of off of 'twenty and 'twenty.

Okay.

Thank you.

What we can add is and in terms of pricing I think that's important to note the pricing of our bikes in particular have not really changed to previous year. So we've kept more or less our price and constant so that might help you.

Okay and on top of that.

And you maybe help us think about when inventory and the dealer channel and normalizes. It seems like this is Ben.

Because of the multi year right sizing.

But I'm not sure if that is something that will persist through 'twenty and 'twenty, one and and then we will get sort of to where we want to be to optimally fill the channel or if theres something else you guys are thinking thank you.

So Jamie this is Larry.

Just a couple of comments on dealer inventory I would say our approach the dealer inventory and supply management, it's really isn't of short term of temporary measure. It really is a fundamental change and how we're doing business going forward.

It's the key action to make sure on motorcycles out of the most desirable and the world.

And we are.

We focused in 2020 on initiatives and products that drive value and.

And create that desirability.

And we essentially eliminated promotions and discounting while we focus on strengthening the brand. So we are very pleased with the results of the actions we've taken.

And we intend to continue to manage inventory tightly and.

Continue to drive that desirability.

And your next question will come from Greg and pushed.

But the <unk> from Wolfe Research your line is open.

Hey, guys. Good morning, it's actually Fred Wightman on for Greg.

We just look at the top line guidance that you guys gave for the 'twenty. One 'twenty five period can you talk about what you think that gets you to in terms of market share is the way to think about it that youll probably get back to 2019 early 2020 of market share figures by the end of the 25 period or.

Should we be thinking about it differently.

Yes.

Yes.

So we and we're talking about strategy.

And I'll go ahead, Larry go ahead.

No I was going to say that we are really not we obviously focus on market share, but most importantly, we are focused on building desirability for the brand.

And and continuing to be the most desirable motorcycle brand and the world.

As I said, what we the actions we took this past year, we have seen.

We are not spending on promotional activity, we're spending on brand building, we've seen increasing and <unk>.

Recycled pricing at retail.

Close to MSRP, we have seen increases in.

You know used motorcycle pricing and bolt it at wholesale and retail we have seen the GAAP.

Close between.

New and late model used motorcycles fairly significantly to the tightest level its been and years. So we obviously look at market share and care about market share, but but we are primarily focused on building desirability for the brand and providing that great customer experience.

And then you know.

Commented on market shares and I also don't really.

Great because we don't know if the market will increase.

The decline will it stay stable. So that's also impacting obviously the whole market share of develops but from that point of view you know our focus is on the.

The profitable and desire of the topline and what type of market share of that gives us so be it and so we focus on on our internal metrics and not really on market share, but as Larry said, obviously, we are looking at market share for sure and we have reset the the button through the market share Boston and by being much more considerate about how we market our products.

And around the world in terms of promoting our brand and making sure that we are keeping the values of all of bikes I and all of the product as well.

Great. Thanks.

The next question.

<unk> will come from Joseph Spak from RBC capital markets. Your line is open.

Thank you very much.

And then it might be helpful for everyone on the call if you could.

And to talk about the total investment dollars expected over the planning period.

But the real question is.

And like your retail obviously suffered this year and I know part of that was because you were of Destocking.

But if.

If you think about that especially considering many other power sports here and it did quite well this year.

And there is some concern that maybe demand was pulled forward I'm wondering if you think you actually missed out because if it is true that the industry demand was pulled forward or maybe discretionary dollars that would've gone to <unk>.

Harley Davidson product and they have gone elsewhere to other manufacturers or the other activities and it would seem like it makes your job a little bit more difficult over the coming years. So I'm wondering if you could just give a little bit of a retrospective as the sort of what do you think happened this year.

Sure. Good question and I don't think we've missed out on anything really.

And in fact, if you look at overall profitability of the dealer network, which is an important college of success as well that has been up.

Significantly over the previous year, yes, and Thats important and we need to have and profitable dealer network and obviously the reset of the.

Of the new <unk>.

Most of the year was also strategically the right thing to do but it was also of necessity because.

Through the pandemic, we would not have been able to bring some of those products to market. So there was a logical thing to do and of course strategically the right thing to do because it's aligning the new model year with the riding season.

So we don't believe that we have missed out but what the what has happened and he said we've been able through the increased demand to overall reduce our inventory levels dramatically. We need we were able to flush out some of the models that were pushed into the market that the previous.

Yes would have been discounted that's gone and our overall MSRP you know the beat.

<unk> is close to our retail pricing used bike prices have been going up so it has helped.

And this pandemic is essentially the increase demand was able to flush out some of the the wrongs of the Pos and set us up for success for future. So we believe we have the strongest our ability with our product with our brand with our dealers and from there we will build and grow our business profitably.

And in terms of your question on investment of the life of the hardware and the guidance that we're giving is capital investment of $190 million to $250 million of year. So the you know throughout this five years. There may be some years that are 190, there'll be some of that that could be a little bit north of that you know the primary investments are.

Going against the core of our business. The most profitable segments of our business initial investments in our E V platform as well as the digital ecosystem.

Sure.

That's all Capex Theres, no opex investment, especially on it.

And that is embedded and there is opex, there's additional brand and marketing investment and that's embedded in and the op margin guidance that we gave and is there any framework around that.

No, we're not providing guidance on that okay. Thank you.

Your next question will come from Joe of Belo from Raymond James Your line is open.

Hey, guys. Good morning, just wanted to clarify a couple of things I guess the first in terms of your mid single digit revenue growth target is the industry growth assumption, that's baked into that whereas the completely independent of us.

The industry growth over the next five years.

It's independent of industry growth in the next years.

We feel comfortable based on our internal evaluation and not really looking at.

As the market and what we expect the market to be we feel comfortable with that guidance no matter what happens obviously, if the world enters into a mess of recession, that's a different story, but.

See what we're seeing now we believe that.

We were fine with our estimates.

Okay got it and just want to go back to the Jamie's question.

Do you see the opportunity to begin rebuilding dealer inventories and 21, what do you anticipate keeping retail and wholesale really consistent this year.

And so I would say, what we said earlier, which is we are going to continue to manage inventory in line with demand and and we are going to want to watch that very closely.

Inventories a little bit tight at the end of last year, but overall I think we feel good about the way we manage the inventory throughout the second half of the year. So so I think our approach is going to be continue to be fairly consistent with that.

But where we feel that inventory has gone low and particular in the fourth quarter through and over achievement and retail say and certainly we will we will adjust that.

And as needed around the world and but not overall as a company there are some pockets where we.

Gone short because of.

And let's say it is.

The above expectation in the fourth quarter, and particularly in those particular pockets and and that we would certainly replenish.

So what they select the rebuilt.

Correct correct got it thank you.

The next question will come from David Macgregor from Longbow Research. Your line is open.

Yes, good morning, everyone.

And to ask about the electric bike business and in the U.

No the deal establish a dedicated division for electric bikes with the focus on technology development, but can you discuss some of the specific goals in terms of timeline of number of models of price points of distribution I guess I'm just trying to get a sense of what your vision is for the electric bike business.

Over the next few years and and how much time do you think you need to begin delivering a relatively steady cadence of the.

The new products to the market and also you mentioned, having dashboards performance dashboards what of your what are your dashboard metrics for the progress on electric bikes. Thank you.

Yeah as I said, we are.

The fully committed to electric and we will be revealing more of our electric strategy later in the year. So I'll have to unfortunately ask you to have a little bit of patients about the everything else and what I said.

It's important because set of of setting up the separate division I think is of significant move for the company and and the because it just gives the autonomy and the flexibility to invest and the opportunities and considering that it is a very different business model that you need to apply to electric and combustion and when you talk about model yeah, it's not really.

Something that are in the electric universe, you would be talking of ball you didn't talk about the model year talk about technology do you have the new technology.

And we've taken and don't think of applications that you that you offer and new products and you and not really aging your product line by model year. So that's one change that we would certainly make and I'll talk about the model and that's one of the reasons why we've also and not launched.

And the new product in the electric space just now the focus was on our core categories combustion categories and then the focuses on and.

Our adventure touring as the launch into a new segment plus one product that also addresses.

The the middle weight and then later, we would talk about electric but as I said, you shouldn't be expecting electric to automatically.

The be launched at the same time as we launch of other products because they are distinctly different in terms of the customer in terms of how we go to market and how we market those products and.

In terms of the dashboard and it.

It's really and internal dashboard that goes across the entire organization. It has overall brand desirability metrics. It has the metrics for each function and how we operate as a company.

And and that obviously also includes electric we are not true.

Planning to publish what our metrics are but you know I mentioned in my speech that the obviously the GAAP between used bike prices and new bikes MSRP versus retail metrics that I'll of course.

Something we're looking at we are certainly also looking at market share, but based on the very different Luke.

And then what we've had and the path. So it's a very differentiated dashboard that will allow us to manage the entire company all of our profit centers all of our segments all of them.

All of our functions.

And align them with and with the overall goal of the company that we've established and that is also how we incentivize our team accordingly.

Thanks Robert.

Your next question will come from Ryan Sundby from William Blair. Your line is open.

Yeah, Hi, good morning, everyone and thanks for taking my question.

Previously I think you talked about a concentrated number of the 50 highest geo markets and then on the rig.

At least today I think you talked more about focusing on the top 10 markets. Just wondering if you could maybe talk about what the focus involves for focused market versus the non focus market wide tenants of the right number and then what this means of the markets that are outside of the top 10, okay.

Yes.

Good question. So we exited the 39 markets last year. The Hyatt. The 50 markets is still intact. Obviously, we are operating in 50 markets, but out of the 50, we have.

Top 10 markets that require and and or that we would like to focus on even further by localizing our approach and go to market you can't do that for every market. So overall are you and our holiday.

Universe is 50 markets overall out of those 10 priority markets that get special attention in terms of strategic planning in terms of how we go to market in terms of our hot why the execution, they might get differentiated product where feasible.

All of these special adjustments thinking global acting logo will apply to those priority markets. So that doesn't mean that we are just working on those 10, but they get specific emphasis and attendance.

And.

The focus from from senior management and and most of these markets actually also have now and really at new leadership in place. So special focus on every respect.

Thanks.

And your next question will come from.

The Lake Havana's from Morgan Stanley Your line is open.

Thank you for the detail on the call I just want to ask about your priority of the management team and the medium term is the growth of profitability. If it does can you provide some color on whether there is the path to get back the 10% motorcycle EBIT margins and if there's a path to get back the 2018 levels and <unk>.

Out of cycle revenues of around $5 billion.

Thank you.

I think you hit the right two words, where after profitable growth sustained profitable growth.

Over the course of the hardware plan and you know we we.

We know where we've been and our recent history. We are we will be building our way back to that both in terms of the top line as well as our overall margin structure.

And we will certainly as I said.

The focus on unlocking potential beyond our financial projections and as we deliver on our goals.

And and you know that that's clear so we want to commit to what we can deliver and then the focus is suddenly going beyond what we what our you know our.

Our targets are for the time being but five years is a long time as well and if you look at the past five years, we've never hit our numbers and we've underperformed and the over committed every single time and that's got to stop so we feel confident that no matter, what we will achieve and the and that's great progress and from there on.

And it's unlocking further potential.

Got it thank you understand the need to sort of reset expectations I appreciate it.

Yes.

And your next question will come from Gerrick Johnson from BMO capital markets. Your line is open.

Hey, Thanks for the second questioner.

Curious not investments and.

And the dealer network.

And that's probably the biggest asset.

Maybe a little bit out of date.

And your your network is mostly exclusive to Harley and we will continue to be so where were you grant exclusions to dealers and have something else to fill in the wintertime. Thank you.

And.

Well, we want to maintain and exclusive network. We believe that there is enough opportunity for all of the holidays and dealers to the exclusively sell them. So that the exclusivity should and will be of focus of our future Hotwire plan and making sure that our dealers have a profit of the future and they have had that and the path and they should.

Continue even more so and the future.

Like everything everything needs to upgrade and I talked of a lot about omni channel strategy, both digital and piece of the experience, it's not just about selling its about.

Carrying the experience that we want to provide us the brand into our dealerships. So the future of retail is certainly something that we're looking at jointly with the with our dealers to make sure that they are you know over time adjusting to the requirements of the marketplace. So updates will happen on the answer.

And a short long and the long term basis.

But there's not really much to talk about other than the strategic direction that is pretty clear that we have to have a fully integrated cohesive experience digital and physical network that then brought that then drives purchases along the entire journey and the ecosystem of our customer.

Okay and can I ask about the mid single digit revenue growth through the motorcycles segment, what what's the what's the base their 2021 and you're building off of or is that off of 2020 of 2019.

For the the hardware, we're talking about 'twenty and 'twenty. One through 2025 is mid single digit revenue growth and then we gave you for 'twenty one guidance that that revenue growth versus 'twenty is going to be up 20% to 25%.

So then are we building off of that mid single digits off of that number are the.

Correct, yes, okay, Yeah Yep Yep.

Alright, great. Thanks.

The next question is James Hardiman from Wedbush Securities. Your line is open.

Hey, a couple of follow ups for me.

You've said it I think here today, and and I think every dealer that we talked to you has echoed the notion that that retail is very much being held back by.

And by a lack of of inventory so two questions and I apologize if somebody else of assets I had the drop off for a minute there, but two questions here.

January shipments.

Shipments and to the channel picked up with some of the the model year 'twenty. One did you see any improvement in retail and in January versus.

Versus the declines that we saw on the fourth quarter.

And then secondly.

I guess from what Ive heard it doesn't look like you're looking to significantly build of inventory over the course of the full year and so to.

To the extent that the retail would have been better and in 'twenty with more inventory or we still and that position in 'twenty, one where and <unk>.

The proportionate number of the benefits will maybe be seen in the and the youth channel, but we're not going to see the full brunt of the the demand benefits.

In 2021, due to and I guess, that's assuming that the inventories don't pick up meaningfully for the for the full year, how do we think about that.

So because of a couple of things January.

And what won't comment specifically on January sales I will just say we are pleased with both dealer and customer response to our new 2021 models. So far they've only been on the market a few weeks, but we feel pretty good about that.

Second thing regarding inventory.

And as Youll consider earlier.

We have a well.

Going to continue to manage inventory tight we are going to focus on building desirability and and all of the benefits that have come with that over.

The second half of 2020, we do have a couple of markets the due to stronger than expected sales in the fourth quarter.

Some parts of Europe for example.

We were we were on I'll call. It below our inventory strategy and we will look to refill some of those markets as we go through this year to make sure we properly supply them, but but absolutely do not want to oversupply of any markets similar to what we did this year.

James one additional.

The piece of color one of it.

One additional piece of color I'd give you on inventories do you think about our are built into pleats right. We exited the year, we will see a build in the front half of the year as we kind of feel that the pipeline and get ready for riding season, and then the inventory comes back down and the back half of the year. So to your point on and missing demand, we will have and the buy.

Thanks.

At our dealers to meet that demand.

Okay, and I guess I'm I'm, avoiding asking the question about retail because I know you don't want to give guidance on the retail, but obviously 2020 retail was down a lot and but demand was not so I'm trying to figure out how do I think about 2021 retail and what's sort of embedded in the guide there.

Yeah.

So 2021 retail we think is going to continue to you know we think there are some positive trends and the market.

And that we saw last year and that and we think some of that is going to continue into 2021.

Certainly if you take a look at our combined new and used sales and the second half of the year.

And they were they were positive and and that trend continued in the fourth quarter.

So we feel good about that and as Gino said, we feel good about.

Our ability to supply the market going into <unk>.

2021, and and have bikes available and the first half of the year, you know and and obviously, we've done a lot of shipments of new motorcycles, particularly in the U S. Since those new models were introduced.

So I would say that.

I feel pretty good about.

Retail as we go into 'twenty, and 'twenty, one and their ability to supply.

And I think to add to this if you look at our used bikes, obviously, they've just gotten the year older and the assets that have they have not been supplemented by a flood of products.

The debt when you last year, because that's what we've done and the path, we delivered excess product into the into the market and it became part of the used inventory that was not built on actual demand, but was pushed into the market based on the push more of that we referred to and that's just not the health the thing to do with that has been corrected last year and we believe.

That's a good indicator and when you look at the used bike prices as well and have been gone up dramatically and the MSRP gone up.

And the close and the gap has been closed dramatically and that bodes well for the future and we've corrected sort of the wrongs of the Pos and setting ourselves up for you and more desirable and day.

Demand versus supply driven business model.

Okay.

Got it thanks everybody.

Your next question will come from Shawn Collins from Citigroup. Your line is open.

Great. Thanks.

Yoke, and Gina and Shannon and again, thanks for taking my second question.

And I wanted to ask about about electric I know, it's a big priority of of the new strategy.

And I know you had been involved and the life wire at Harley Davidson and since day one.

Can you offer some commentary on and your strategy, which I know is still evolving, but and Jackie possibly comment on the potential of electric in the motorcycles space of the whole.

In all of US electric is is virtually turning the auto industry upside down.

Is it possible that electric turns the motorcycle industry upside down and there are any thoughts on the industry as a whole might be helpful. Thank you.

Thank you show on the.

First of all I would like to reiterate what I said last year and one of our quarterly calls.

Likewise is an absolutely extraordinary product its the best product out there.

It's performing extremely well and and I Couldnt have asked for a better electric experience coming.

From from the company so that's.

Very important.

Foray into electric is working very well in terms of having a fantastic bike that those who own it up very pleased about and that's the starting point.

In terms of the industry I think you'd need to differentiate between segments and when you look at the core segments of Harley Davidson and it takes it will take a lot longer for electric to arrive simply because of the technology that is required and particular in the touring segment.

And is not there yet simply because bikes of less by the space.

And for battery packs and and range for touring is very important and so if you have less space and need high range that will take time, so the electrification and the motorcycles segment will happen much faster.

And the in and what I call. The mobility segments. When you talk about you know urban and urban centers around the world, where the motorcycles essentially becomes and mobility product.

You get around town, and and and that's where technology and range and customer expectation and you know meet quicker and and in the way, we would see and electrification and happening much faster when you think about <unk>.

And that a quarter of Harley Davidson and that will take a longer time, having said that is absolutely critical foster invest into electric now and.

And having a differentiated approach of exactly based on what I said set of setting it up as the separate division and in order to cater to the at the opportunities that exist today to prepare ourselves for the long term future for Harley Davidson and that's essentially what we're doing.

Great that is helpful. Thank you.

Your next question will come from David Macgregor of Longbow Research. Your line is open.

Yes, thanks for the follow up I, just wanted to ask about each DFS and you'd indicated that your plans were to expand the each DFS globally. The global mean tracking of the 10 geographic markets that you've identified for motorcycles and if.

If it doesn't and you're sort of thinking more in terms of those 50 markets. Overall I guess the question would be what gives you confidence that you can scale H DFS within the company and.

[noise] presence and bikes and not sustained and increase and underperforming loans.

Yeah, I mean, we will always be very focused on making sure that we have of healthy credit portfolios that goes without saying and expanding doesn't always mean doing it yourself it might be looking into partnerships with others as well and it's certainly our 72010 will apply and also when it comes to the markets that we would be focusing and looking very.

The fleet.

And the risk reward opportunities so of line HD of fast with our overall company priorities and that's where we would be focusing and the beginning.

Thank you.

At the end of today's Q&A session I would now turn the call back over to Shannon Burns for closing remarks.

Okay I want to thank everyone for joining us here today and please remember to join US for the reveal of our all New Pan America Adventure touring motorcycles on February 22nd see it on.

Yeah.

Thank you everyone and this will conclude today's conference call you may now disconnect.

Yeah.

Shannon do you want to move or the team.

Yes, the move up move over the teams now.

Perfect.

Hi.

[music].

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Ladies and gentlemen, thank you for standing by and welcome to today's only gave the says 2024th quarter and that's your analyst Conference call.

Okay.

At this time of.

And so that's your window walks and all of my colleagues and after the Speakers' presentation and never be a question and answer session.

I should try and that's fine and Muslim plainly the press star and the number one on your telephone keypad, yeah huge of rebate.

Keep your questions to one of the time, if you would like to ask another one stage jump back and the Q. If you require any further assistance. Please press the barrel.

Please be advised of today's conference call is being recorded over and now like to turn the call over to Shannon Burns manager of Investor Relations. Please go ahead.

Good morning, everyone. Today, we are webcasting the slides for this call you can also access the slides on Investor day at Harley Davidson Dot com.

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 and we have noted on our latest earnings release and filings with the SEC Harley Davidson disclaims any obligation to update information on this call. Joining me. This morning are CEO European sites CFO Jean together.

And our Chief commercial Officer, Larry Han will also be joining us for Q&A yoga and let's get started.

Thank you Shannon I would like to welcome all the shareholders the financial community dealers employees and all of all of our valued stakeholders, who are joining us today.

We've extended todays call in order to first review all of 'twenty and 'twenty financial results to then discuss of our new strategic plan the hotwire.

'twenty and 'twenty was an extraordinary year for most companies with outside the challenge is not seen before and our lifetime the Roe.

Most of those challenges.

Oh of T manage COVID-19 impacts keeping community one of being at the forefront protecting liquidity and achieving significant cash savings.

We also successfully overhaul of the entire company through the rewire.

As a result, we expect to deliver ongoing gross cash savings of approximately $115 million starting this year.

Just to name a few additional results of the rewire with.

And we streamline our planned product portfolio about 30%.

Reset motorcycles motor year launch timing and closer to the start of the riding season.

The 39 markets with shopping focusing on the highest potential markets.

Optimized our dealer network, reducing the total network by approximately 160 net dealers.

And our approach to supply and inventory management and have tightened dealer inventory of about 59% driving significant increases and key value metrics.

We substantially reshaped and improved all aspects of the company setting and that's on a solid footing to deliver the next phase of our transformation.

The entirety and pulled together and put forth tremendous effort.

We put in place the right leaders structure and strategy to perform at a much higher level.

Throughout the year, we also made initial progress towards enhancing desirability.

And I talk more about this later, but for now I will ask Gina to review, our financial results for 'twenty and 'twenty Gina.

Yes.

Thank you yoga and 20.

<unk> 'twenty and 'twenty was indeed, an extraordinary year for Harley Davidson, we took significant actions to reset the company for future success through our rewire actions and our pandemic response.

Our fourth quarter results reflect the continued execution of our deliberate supply and inventory management approach as well as the impact of our new model year reset from Q3 to Q1 each year.

With the strategic shifts our Q4 revenue and margin were down significantly versus a year ago, but exceeded our internal expectations for the quarter.

Fourth quarter of results were also impacted by $44 million of restructuring costs and brand investments to support the reset and new model year launch timing.

Financial services had another strong quarter with operating income of $77 million, which is up 31% driven primarily by a lower provision for credit losses.

On a full year basis total revenue was down 24% driven by the motorcycle unit declines and we delivered consolidated operating income of $10 million, resulting in full year earnings per share of one cent.

Adjusted earnings per share is 77 cents, which excludes the impact of restructuring and tariffs.

Rewire of restructuring charges totaled $130 million for the full year as a result of these restructuring actions, we reset our cost structure effectively lowering our cost base by approximately $115 million.

In Q4 and for the full year global retail sales and market share of new Harley Davidson Harley Davidson motorcycles were down compared to last year, reflecting tight retail inventory and the shift and timing of your model your lunch.

Across the dealer network retail inventory of new motorcycles was down 64% and the U S and 51% internationally.

We continue to see the positive impact related to our inventory and supply management efforts. These actions are driving fundamental improvements across our business and are creating value for our dealers and customers through stronger transaction prices for both new and used motorcycles and a successful network of dealers.

Motorcycles segment revenue was down at 39% and Q4 on of 48% decrease in motorcycles shipments versus 2019 related to the impact of the model year changeover, and our supply and inventory management efforts.

The impact of motorcycle mix was slightly negative as the Inc. Increased contribution from touring was offset by the decreased contribution from the cruiser segment.

Complementary business performance and the quarter was anchored by a 13% increase and parts and accessories revenue due to strong it used motorcycle sales and the quarter.

On a full year basis revenue was down 29% on a year over year motorcycles shipment decline of 32%.

And unfavorable mix shift of motorcycle models was partially offset by higher pricing and fewer sales incentives in line with our ongoing approach to supply and inventory management.

Moving on to margins absolute gross margin was down and the fourth quarter and full year due to lower shipments product mix and unfavorable foreign currency exchange. These headwinds were partially offset by favorable raw material pricing and Lawrence incremental tariffs within manufacturing.

The motorcycles segment finished with an operating loss for both the quarter and the full year as we navigated COVID-19 and executed the rewire actions needed to properly position the company to execute the hardware plan.

Marketing investment was up $20 million in Q4, as we invested ahead of to support the new model year launch in early 'twenty 'twenty one for.

And for the full year, we aggressively manage costs and realized $126 million of SG&A savings.

Financial services segment operating income in Q4 was $77 million up over 30% compared to last year.

And net interest income was down due to higher average outstanding debt as we proactively manage liquidity during the ongoing pandemic.

The Q4 of total provision for credit losses was $36 million favorable to last year with about half of the decrease due to the actual credit loss of performing.

Retail credit losses continued to be down versus last year. As a result of lower delinquency is driven by a high volume of Covid related loan payment extensions for qualified customers earlier in the year as well as improved use of motorcycle values at auction.

The remaining change and the provision for credit losses was driven by lower finance receivables and Q4, partially offset by a smaller increase and the overall reserve rate as compared to last year.

We believe the allowance for credit losses appropriately reflects the company's outlook on economic conditions and represents estimated lifetime losses in our portfolio at the end of the year.

Operating expenses in the quarter were were unfavorable versus prior year due to primarily restructuring charges.

Despite the challenges of 'twenty and 'twenty the financial services segment delivered a very solid year, new retail originations in Q4 were down one 5% versus last year, but market share for new U S. Retail financing remains strong new retail motorcycle originations were down on lower new retail.

Sales of inventory availability, partially offset by higher used motorcycles originations for.

For the year H D. F. S finished just under $3 billion and loan originations and with the historically strong market share at nearly 68%.

At the end of the quarter H D. F. S had $2.59 billion of cash and cash equivalents and $1.35 billion of liquidity available through bank credit and conduit facilities for a total available liquidity of $3 $94 billion cash and cash equivalents remained elevated as we prudently hold cash.

On the face of ongoing economic uncertainty.

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Continues to manage its debt to equity ratio of between five and seven times and well within the debt covenants of no higher than 10 to one.

H DFS is retailed 30 day, plus delinquency rate was 3.18% down of 121 basis points of compared to the fourth quarter of last year. The retail credit loss ratio was also favorable at 1.38% of 62 basis point improvement over last year, the favorable delinquency performance.

Is largely due to a high volume of Covid related extensions on retail loan payment due dates during 2020.

The vast majority of the extended accounts have made at least one payment after the expiration of their extension period, and we do expect the joke that the delinquency rate will normalize over time.

Shifting back to Harley Davidson, Inc. Financial results, we ended the quarter with $3.26 billion and cash and cash equivalents as we maintained high liquidity through the pandemic full.

Full year operating cash flow was $1.18 billion up 36% over prior year, demonstrating the positive effects of the rewire despite of challenging year.

Key drivers of the improved cash flow were lower inventory levels and the impact from wholesale financing.

Additionally, we tightly managed our capital expenditures as part of our efforts to preserve cash, finishing the year down of $50 million versus 2019.

And finally, the company recorded an income tax benefit during 2020, driven by a pre tax loss and favorable discrete income tax benefits recorded during the year.

And now I'll turn it back to yoga, and who will take us through our five year strategic plan.

Thank you Gino.

Now, let's look forward and talk about all the hotwire five year strategic plan that will guide the Harley Davidson and into the future.

It's been the 11 months since we started this journey together as the old world, what's good by the pandemic.

We've successfully completed the rewire comprehensive playbook across all aspects of our business to drive efficiency speed and focus that we believe will yield significant results.

We've also conducted the rigorous strategic review of leading to the development of a clear path for the future the hardware.

This would be powered by HD number one of high performing winning culture based on 10, clearly defined leadership principles.

Oh of hardware of strategic plan is rooted and desirability.

Our ambition is to enhance our position as the most desirable motorcycles brand and the world.

Desirability of the motivating force driven by emotion.

Davidson has long been associated with ignite and desirability, it's and our DNA and it's an embedded and our vision is at the heart of our mission and it is part of all of 118 year legacy.

[noise] downright Harley Davidson's desirability possessed the value of our customers purchases built our brand beyond our writers and ensures loyalty and drives engagement.

Our strategic ambition for desirability, and therefore very simple.

Design engineer and advanced the most desirable motorcycles and the world's reflected the quality innovation and craftsmanship.

Bill the lifestyle brand valued for the motion reflected and every product and experience for riders and non riders alike.

And focus on our customers delivering adventure and freedom for the zone.

Desirability starts with the most coveted motorcycles and the world machines that the.

Both of them and of innovation and evolution.

And then extends across our complete offering parts accessories, and general merchandise and financial services, the complement and enhance the riding experience and define the holiday and the lifestyle.

[noise] desirability, it's also reflected and world class go to market brand and marketing experience, the build awareness and excitement and commitment with an elevated brand voice and the digital focus on the customer and the journey.

And finally by building more opportunities to broaden our connections through the marketplace that becomes the leading destination for all things motorcycles.

Driving the of diverse experiences and continuing to define motorcycle culture.

We believe Harley Davidson is uniquely suited to the lead across all aspects.

We are committed to the desirability as a framework for our operations and our business and the tracking our progress with brokers with the comprehensive dashboard.

This will include inventory levels, and the price gap between retail and MSRP and between new and used motorcycles.

The priorities of all of Hotwire strategic plan and I'll build upon the durability, we intend to one.

Invest and our strongest motorcycles segments that drive profit.

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Selectively expand into and redefine segments, where we have of winning offering.

Three and invest in innovation and the electric market, which would be a critical part of all of future.

Four grow our complementary businesses, both in product and the lifestyle.

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Enhance and customize the Harley Davidson experience for all customers riders and non riders across all steps of the customer and purchase journey and six prioritize inclusive stakeholder management and how we think about people planet and profit.

I will now provide some context around each priority.

Through the re why are we streamlined our product portfolio.

The hard way of plan and reflects the clear alignment on the focus of our time and energy and captured by 72010 construct with the lion's share of focusing all of stronghold segments of touring large crews and Jake.

We maintain an enviable position of share leaders in the segments that are the most attractive with the largest profits.

We intend to both defend and grow these positions, where we're leading to power profit, but the power of profitability.

As we talk about growth and all of a stronghold segments I must address our position and the health of the overall market.

The data makes it clear that the segments have demonstrated steady aggregate demand customers remain engaged and willing to purchase Harley Davidson and bikes.

The two distinct parts to this market E bikes and used bikes, both of which present opportunities, which we will pursue.

Our approach to catch up growth and all of a stronghold segments, it's twofold and laser focused.

Inspiring our most loyal customers to upgrade to exciting new offerings and choose Harley Davidson is the addition of bikes.

And compelling new customers and ride us to choose Harley Davidson.

And new bike that provides novelty and innovation of way of appropriate for the circumstances of used bikes that gets them into the holiday family and the opens new revenue opportunities.

We believe these actions will deliver solid margins by driving the reengagement and repeat purchase while bringing new customers into the brand and our core segments.

Great and compelling reasons for repeat purchases is therefore key.

We will deliver three inspirational products and it live up to our vision.

Turing and large crews of customers will see differentiated yet true two of holiday products that motivates them to buy a new models.

We are investing and design technology and performance enhancement that push the boundaries, while maintaining a balance between flexing and cutting edge designs.

We also plan to extend and expand the opportunity to do right for new and existing customers by providing comfort ease of use and modern styling and on our strike models.

We believe there's untapped potential for traditional types of where we lead the industry.

Just don't expect to see too many product details of ahead of time as we've said before we're keeping our cards close until we launch on the bugs.

Returning all of focus to our stronghold categories. It's the only the first part of our strategic plan in line with 72010, and we will also selectively focus on the set of opportunities that we believe the live on two critical conditions.

The attractive and profitable segments that deliver a balanced combination of volume margin and potential.

And they are well aligned with our product and brand capabilities with the clear path to leadership.

By narrowing our focus on those opportunities that meet these criteria, we make all the intention clear we will be in them to win.

Supported by the REIT and location of time and energy balance with the right investments and product brand and go to market capabilities.

This winning combination is evident and Pan America, and exciting new product that we believe will transform our market participation and provides the ability to compete effectively in the new space.

Adventure touring is the largest segment and many European markets with both attractive margins and high growth.

There's also a large largely untapped segment in North America, and we're excited by the potential at the Amdocs volley Davidson.

The segment is a natural fit.

With Pan America, we feel the adventure touring and are expanding the language of the Harley Davidson touring experience deeply rooted in our history.

I invite you and I invite you to join US on February 22nd for the Pan America reveal.

As part of our profitable expansion within segments, we also plan to reinvent and increase profitability and middleweight cruises.

A new Revolution MX engine provides the versatile platform.

Neighbours expansion across segments.

This will provide us with what we believe is the highly competitive and profitable path and a segment that expands our relevance to a greater customer set beyond all of our stronghold offerings.

We will have the first glimpse of this also on the 22nd.

The rewire radically simplify the geographic footprint and identified the markets that would make the most of all future, including the U S.

<unk>, which is Germany, Austria, and Switzerland, Japan, China, and Canada, France, UK, Italy, Australia, and New Zealand.

We've taken the next step two of driving these markets the full potential by identifying the right product and go to market approach for each and in many instances of bringing in new leaders with the right experience and capabilities.

These markets on the most profitable which is nowhere more evident than in our commanding presence and the single largest and most important motorcycles market and the world the United States.

They also include high potential geographies, most notably China, while product and brand of well respected and highly desirable.

This does not represent turning all of it back on the rest of the world and the potential of emerging markets, but we have an understanding that the more focused investment with the right capabilities and approach has a clear path to success that this aggregated volume across the globe with sketchup product fit of market strength.

As part of all of 10% focus we intend to continue to test further avenues for long term growth such as premium low displacement via partnerships and actively evaluate other opportunities.

We're also leveraging a series of choices made and the rewire the support and empower our strong net product segments that preserve that is our ability and that stay true stay true to the 70, 2010 time and energy allocation.

The streamlined product portfolio that allows for more focused investment from development to the frontline sales.

And deliberate management of some supply inventory and did not demand dynamics in the market and the rational use of promotions.

As I've said before we aim to deliver enough fuel for our growth, but will not chase volume portfolio and sake.

Optimized operations and in particular on supply chain that either enable cost efficiency and transform our capabilities and critical geographies like EMEA.

With the goal of closing the regional profitability differences.

And the renewed focus on Craftsman chip and pride and manufacturing as well as greater responsiveness to the customization and choices that went on most of our customers.

Our combustion motorcycles will drive our business for years to come However, electric motorcycles are important to our long term success.

We are fully committed to and passionate about leading electric motorcycles.

We are proud to be the pioneers in this space through life why are widely regarded as the leading electric motorcycles and the world.

Our intent is to remain at the forefront of electric through investment and technology, while we recognize the long term horizon required for ground breaking developments in the segments, we want to compete and.

The nature of electric calls for unique and game changing approach and I'm excited to share a few details of this with you today.

We will be focusing our electric strategy through a separate division with the leadership team and solely dedicated to developing the most of the desirable electric motorcycles and the world.

Our plans for our product and go to market would be grounded and the expectations of a clear customer segmentation with cutting edge of developments distinct brand focus with innovative digital and physical experience on the path to purchase.

The creation of the separate division will allow full autonomy to E V development.

And the business units to behave with the same agility and speed is of tech startup, while still leveraging of the support expertise and oversight of the blow the organization, allowing for cross pollination of innovation and the electric with combustion product development.

This path will also create the option for partnerships to achieve synergies for future developments.

Electrical forged the weight and the new sector and help lead the long term transformation of the company.

You will hear more later this year as we execute on this vision.

We've always been more than the machine and our related businesses are more than just complementary.

Parts and accessories General merchandize and financial services are all important pillar store of future successes of global lifestyle brand.

In addition, H D Inc. S is the strategic asset that drives Harley Davidson and success as a company and we intend to expand on that internationally.

This untapped potential of these businesses to grow our customer base and adds to customer lifetime value.

Our plan and emphasizes accelerated growth and profitability of these important businesses through expanded efforts to drive attach rates at more points throughout the purchase journey, including a digital test parts to purchase and improved offerings and stronger execution based on the clear omni channel strategy.

We create products and services and experiences that inspire our customers to discover adventure and lived the Harley Davidson lifestyle.

We intend to regain our role as the destination for high quality parts for all of our writers.

Stepping into the vast universe of of used motorcycles.

We will focus on the categories the best enhance the value of our motorcycles for writers.

Customization as part of our heritage, we plan to increase point of purchase accessories Asian.

Deepening the commitment to riding and our brand digital investments will simplify and enhance the experience the target purchases of new and used harleys at more points along the journey.

On the Davidson riding gears authentic the motorcycle the culture.

We plan to build brand commitments of general merchandise by growing and our strongest most desirable categories, including riding gear leathers and sportswear.

We also intend to enhance our emphasis on customers who are drawn to the brand by expanding beyond our traditional categories and retail channels to further tap into lifestyle opportunities.

Our <unk> business has a strong track record of delivering growth and profitability, but we believe there's more room to build globally and leverage its potential.

We intend to expand H D of fats into the preferred choice for all Harley Davidson riders, but building digital capabilities of rival the innovators and financial services.

This includes the creation of of pre owned Harley Davidson program called Harley Davidson and certified.

This program is designed to lead our industry and reach new customers and partnership with our dealers to enhance the overall experience, while also supporting growth and parts and accessories and general merchandise and the HD vest businesses.

There's also opportunity and how we bring our iconic products to our customers.

Our goal is to build an ecosystem of experiences and retail opportunities that makes us both of the premier digital and physical destination.

Our plans include World class brand content on the on the or enthusiast masthead and the new take on our loyalty programs relevant content tailored to audiences driving traffic and awareness of our brand and sharing experience of all the writers and fans.

The redesign set of experiences that bring together all the diverse communities and enhance the holiday and lifestyle driving engagement and the world class marketplace for all hover day holidays and businesses driving revenue.

We believe we have the unique ability to succeed given all of the highly engaged customers and new ones that we will attract to the brand.

No other motorcycles brand even comes close to a holiday bids and in this regard.

Our dealers our partners and the hotwire.

Through the review, while we jointly took action to strengthen and optimize the dealer network and drive efficiency and better execution.

And if it's that will continue into the future.

We created new incentive structures that the line company and the local it's more closely focusing on competing with other brands rather than rather than within our network.

We've invested significant resources aimed at improving the networks overall profitability as we believe that the powerful network of successful deal. It is essential to delivering the best Harley Davidson and experience for our customers.

As we execute the hotwire and we look forward to our continued partnership leveraging our dealer capabilities to deliver industry, leading experiences supported by strong at scale digital capabilities and marketing investments.

The hotwire puts our customers at the center of our product experiences and our investments.

We use the word customer very deliberately with a rider has locked thousands of miles is new to motorcycling, owing to the used or new bike is deeply invested in the lifestyle of simply loves the adventure freedom of the brand represents.

This inclusive customer focus whatever the relationship to Harley Davidson is a powerful the drive of the hotwire.

Our hand in the hand view of our customers is reflected in how we think about them and and their engagement with the brand.

Over half of all of new bike purchases I experienced riders of different stages of the engagement of Motorcycling.

These customers on enormous effort with high lifetime value and repeat purchase patterns.

Well, it's a very important to our profitability and the hotwire aims to deepen the connection to holiday.

While the remaining customers of either new to Motorcycling and while connecting through the brand as the lifestyle.

<unk>, the lifeblood of growth and future years.

Retaining them expanding share of wallet and inspiring them into deeper stages of the journey is also important.

Let me also addressing the important point of run customers. Much has been said about the aging of Motorcycling and our riders.

And what data suggests there's the more nuance story to be told.

Our customers of our diverse joining motorcycling in the branded all life stages and ages, including younger age groups.

While we automatically skew towards middle aged writers given the segments. We are in our customer H probably show up profile is very similar to that of our closest competitors.

Our brand lends itself of cost to customers, who aged into and then stay with holiday in line with distinct psychographics that make our brand appealing to them.

Our improved customer segmentation and efforts to reach audiences through multiple digital channels with relevant content allow us to connect with people of all age groups that we are targeting.

Our planned product offerings will also help us expand our reach across the wide age range.

Significantly enhanced digital efforts and products like adventure touring and redefined middle of the weight bikes. For example on aimed at attracting riders and inspiring customers, who further diversify our profile.

In line with this new perspective on the richness and nuance of our customer our marketing investments will be focused on elevating and authentic powerful and trendsetting brand voice that speaks to each customer segment, specifically tailored to our core markets.

The key to of Hotwire approaches of recognizing of different needs and expectations of each segment across the consumer experience and purchase journey.

Ensuring each touch point is tailored to what they want and how they want to engage with us.

And the only channel purchase journey into a thriving community of the rewards loyalty engagement and writing to efficient service experience and personalize. The outreach. We are building upon the vision of customer experience designed to lead the industry.

Delivering on this vision for our customers will rely on the deeper knowledge and understanding of all existing and new customers powered by a more coherent and holistic view of who they are through the power of the integrated data.

Our goal is to deliver a seamless interaction with our customers facilitating and personalizing the individual and collective experience with Harley Davidson.

Ultimately the success of heartworm and being the winner and all things motorcycles will be based on keeping our customers and the personal experience with Harley Davidson at the forefront of our efforts.

I've spoken today about our product and experiences our ambitions and our focus on of our customers.

I've also noted the importance of all the diverse community to our success and there are many stakeholders included here.

Inclusive of stakeholder management is the unifying theme for how we would think about our role in society, giving us purpose beyond just financial performance.

And this regard embracing and promoting inclusive of the across every aspect of our community will be central United We were the right.

Inclusive of stakeholder management is considered at of all of people planet and profit. It's all three of deeply embedded in the past and future success of our brand and company.

We strive to deliver long term value to all stakeholders through innovation that learns from yesterday challenges today and rewrites tomorrow.

Evolution, two shared prosperity for all our stakeholders through inclusive of sustainable and fair markets.

And the emotional and our efforts to enhance our customers' lives by providing adventure connection to the world and the community around them.

Here's how we're thinking about people planet and profit.

First people employees dealers customers suppliers investors and society.

Realizing our best sales by embodying the spirit of the winning HD number one culture and community by creating a high performing engaged and diverse workforce, where we are attracting and retaining the talent we need to win.

Making Harley Davidson and synonymous with the highly desirable inspiring and safe work place from our offices to our factories by evolving our spaces and how we work.

Our efforts also include fostering an inclusive and welcoming of dealer network and the diverse supply base focused on ethical sustainable and equity based purchasing and sourcing practices.

When we think about planet. It includes our role and sustaining the planet by establishing a path to net zero environmental impacts while delivering on the Harley Davidson mission.

And profit through our focus on desirability, we plan to drive profitability and shareholder returns.

Also want to closely align the rewards of our employees with our shareholders and our offering and equity ground to approximately 4005 hundred employees at the start of the hardware.

All employees from tech the workers to executives with benefit when the company succeeds with.

And with this expanded the approach everyone wins.

This is the first and the history of all of company acknowledging the important contributions of everybody and our workforce and making Harley Davidson and successful.

And finally, a few words to close all of my remarks on the hotwire.

And I hand, it over to Gina to discuss our financial outcomes.

Our intent is to build trust and Harley Davidson and confidence and what our new team is able to achieve.

And the past years, we've over committed on the delivered well.

And now is committed to setting realistic expectations and we know that execution is everything.

It's the rewire has shown on the new HD number one culture will define the new level of accountability capability performance and competitive spirit.

And we'll continue to develop and drive that ethos through the hotwire and beyond and when shell and we'll chat and I would challenge the team to strive for the highest performance to unlock upside.

Now Gina will take you through our financial targets.

Thank you Jochen in line with our commitment to set realistic expectation and target profitable growth. We believe our five year targets will demonstrate continued progress through 2025 on several critical dimensions and they are a step change from our recent historical performance through.

<unk> 'twenty 'twenty, one to 'twenty and 'twenty five determined the hardware our targets are as follows.

For the motorcycles segment, we are targeting mid single digit annual revenue growth with solid growth expectations, and motorcycles parts and accessories and general merchandise.

We also expect the motorcycles segment operating margin to show steady improvement from 2019, our most recent comparable year driven by increased efficiencies across our operations and leverage within SG&A as we maintain a lean cost structure, we will continue to invest back into the business and brand and.

And have included the anticipated investments in our updated margin profile.

In financial services, we are targeting targeting operating income to grow double digits 'twenty 'twenty, one through 'twenty and 'twenty five behind growth and the motorcycles segment and optimization of our digital platform.

We expect capital spending to be between 190 and $250 million each year behind defined hardware investments.

This includes the capital required to innovate across our core product families. And also includes initial investments supporting the separate EV division as well as capital needed to build out and enhanced digital ecosystem.

Finally, we are targeting low double digit EPS growth 'twenty, one 'twenty 'twenty, one through 'twenty and 'twenty five.

As we look at the motorcycles segment operating margin through 'twenty and 'twenty five we are targeting of steady year over year improvement leading to healthier margin levels and our recent past.

As I talked about earlier the negative operating margin in 2020 was primarily driven by the impacts of Covid and the restructuring actions and costs incurred as part of the rewire.

As we look forward, we believe our steady margin gross will be fueled by focus on our most profitable motorcycle categories optimization across our operations outsized gross of our complementary businesses and maintaining a lean and SG&A cost structure.

The hardware will require significant investments, most notably product innovation across combustion and electric brand investment and enhancement of our digital capabilities.

And as I reflected in our current margin projections.

Turning to cash allocation, we have two priorities moving forward.

First we will fund our hardware of plan and capital and brand investments that we believe will drive our expected operating income and double digit EPS growth through 2025.

Our second priority is to reward shareholders through dividends, starting with the Q1 cash dividend of <unk> 15 per share that we announced in our press release this morning.

We plan to reserve remaining cash for high return on investment opportunities to accelerate growth and and unlock upside within the hardware of framework. At this time significant share repurchases are not planned as we prioritize cash for these top two priorities.

Our objective is to deliver shareholder returns that are commensurate with our industry and the results of our business. While also recognizing that seeding the right investments for future growth, we will provide long term value for our shareholders beyond 2025.

For the first year of our hardware of plan execution, we expect to continue to manage through the ongoing uncertainties brought on by Covid and the impact of our revenue and supply chain our guidance for 2021 is as follows.

Motorcycles segment revenue growth between 20, and 25% versus last year with operating margins of 5% to 7%, which includes the $115 million of cost savings benefit delivered as part of the rewire initiatives.

Additionally, we expect to incur approximately $20 million of restructuring charges early in 2021 related to the rewire actions.

We expect total financial services operating income growth between 10, and 15% versus last year.

And lastly, we are planning for capital expenditures between 190 and $220 million.

And now I'll hand, it back to you okay.

Thanks Gino.

Let me summarize.

And we're building on the is our ability and we will continue of cultural journey of its HD and number one and committed to being a world class team leadership and talent that is fully aligned with our unique vision and mission as the company and brand.

Oh, the hardware plan is built around six strategic priorities.

Invest and our strongest motorcycles segments that drive profit.

Electively expand into and redefined segments, where we have of winning offering.

Invest and the electric market and the innovation, which we believe is critical is of critical part of the future of our business.

Grow our complementary businesses, both in product and lifestyle.

And the Hearts and customize the holiday bids and experience for all customers riders and non riders across of all steps of the journey and finally priority is inclusive stakeholder management and how we think about people planet and profit.

Maintaining focus on the six strategic priorities, we believe will deliver profitable growth and solid returns.

Our priorities of bowls, and I would challenge the team to strive for the highest performance to unlock further upside within the hotwire.

This is an exciting time and opportunity to transform and one of the most recognized and iconic brands and the world with the new strategic plan and new leadership team.

We're looking forward to sharing more about the hardware playbook as we execute our plan now.

Now, let's take your questions.

Yeah.

Thank you noted you asked the question. Please press star one on your telephone keypad Covid placed into the queue. We ask that you limit yourself to one question. If you have any further questions. Please press star one again to re enter the queue. The first question comes from James Hardiman from Wedbush Securities. Your line is open.

Hi, good morning.

But lots of digest here, obviously really appreciate all of the the qualitative color around the new hard wire plant and I. Thank all of the.

Goals might make a lot of sense of the street.

I wanted to dig in and maybe into some of the quantitative aspects of this.

You've given us some pretty good guidance for 2021.

I do the simple math here and I guess basically and the low $2 of of earnings range.

And then we have the through 2025 guidance, which is the low double digit earnings, which basically gets me into the mid $3 range low to mid $3 range, which is.

Basically what you did and in 2019.

I'm trying to sort of make sure I understand that the.

Essentially the longer term plan as is.

Understandably conservative and I get the idea of of maybe under promising and and over delivering.

But it seems like the goal here is basically where we were last year.

We're on sort of off on on some of that Matt.

Yeah.

Oh, no I think that your math is getting into generally the right the right spot and what I'd say in terms of where we've been historically has come as a company of setting very high expectations and then not delivering on those so we wanted a purposely set of baseline that we are committed to.

We're confident in delivering and it does yoga and sat in his his remarks, finding ways to over deliver on that on that guidance, but right.

Right now you know we are we are planning for kind of how you. How you said it to get to get back and slowly build conserve and kind of nice growth year after year after year of sustainable model.

Got it and then just maybe a little bit of a clarification and and the hardware plan.

And I forget the wording, but it was basically to.

Improve consistently improve our operating margins.

Versus 2019, but then it actually seems like 2021 operating margins or a step back from 2019, and my thinking about that the right way of room on maybe mixing GAAP or non-GAAP and some way, but have you guys doing sort of of mid 9% operating margin in 2009.

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Non-GAAP versus versus call it of 5% to 7% for 2021 got it on and Mike.

Yeah got it and yeah.

Yeah on a GAAP basis, what I would say is that we will we will be improved versus our 2019 levels.

And it and then slowly building year after year.

Through the course of the hardware plan.

Slowly improving GAAP and so the 5% to 7% is the gap for both currently and 19 and 2021 and sort of on go forward basis.

Got it.

Excellent. Thank you.

And your next question will come from Shawn Collins from Citigroup. Your line is open.

Great.

And Gina and Shannon and good morning, nice to speak with you.

Good morning.

Hello.

Hey, guys.

So I wanted to ask.

I know you get your new product launch.

Just I think a week and a half ago and just wanted to ask what the reaction to that has been so far if you could talk about that.

Sure. This is Larry on Sean.

Just a quick comment on.

Yes.

Sean This is Larry and just a quick comment on on the 'twenty. One launch good response from customers a good response from dealers. So far so so we are pleased with that.

And then obviously looking forward to the reveal of Pan America here and.

A couple of weeks.

Great great.

And thank you for the time and insight.

Yeah.

And your next question will come from Gerrick Johnson from BMO capital markets. Your line is open.

Good morning. Thank you so you're talking about investing more on the core tour and the large cruisers, but at the same time, Inc.

Going to the compelling new riders to choose Harley.

How do you plan to do that without the vesting of smaller displacement bikes I understand the Pan American but.

Are you no longer committed to see the sportster segment.

And it seems like to get me writers and we'd have to learn of them from the other brands, which seems a little bit more difficult and then giving them at the entry level. So if you can discuss more.

And depth of how you plan on bringing the riders into your ecosystem. Thank you.

And as I.

Said in addition to touring and large crews as they are the opportunities as part of our 70 2010 construct and the 20% includes entering new segments and expanding profitability and the existing segments. So that the new segment will be adventure touring as an example, and the existing met the segment would be mid of the way cruises, which would include sports the.

And as I also said I believe the 10% includes us looking at premium and low displacement of.

And in markets, where we see an opportunity primarily through partnership. So all of these segments are critical segments as part of the hard way of going forward and and should enable us to bring new riders into the sport before the end to touring and lots of cruises.

Alright, thank you.

And your next question will come from Craig Kennison from Baird. Your line is open.

Hey, good morning, Thanks for taking my question as well on the certified pre owned program. What are the economics of the CPO program and are there any direct revenues for Harley Davidson and Theres really is.

Is it just a function of the kind of indirect benefits that you or your brand.

That's from higher used prices and then of course dealers benefit from being able to sell.

Bikes in the network.

But the benefits direct and indirect obviously and first of all the the pre owned program.

We'll be professionally inspected and verified mechanically sound backed by 12, one limited warranty.

And and those are exclusively available at participating holiday and dealerships. So that that's the benefit of the dealers and there is obviously, it's more of a mockup included four HD for S that will enhance our overall customer experience and support the growth of H D Inc. S. As a complementary business. So we see that as a further the dry bulk of profit.

The ability for H D Inc. S as well.

And just a little bit of background you know the total park of used Harley Davidson motorcycles. If you look at the entire unit.

Ecosystem is essentially 3 million motorcycles with about a third being seven years of older. So we see that theres, a great opportunity with the focus on them.

On the program that will certify bikes that are no older than five years and have no more than 25000 miles and so that's the focus and those customers. We believe are the heart at the highest potential to also.

Get them engaged and new motorcycles and the future and it also is the competitive move because we are the only ones through our dealerships that can actually certify those motorcycles and cycles, which should be an addition of benefit for our customers to come to a Harley Davidson dealers and come to Harley Davidson, rather than going to anybody else, who might service and Harley Davidson motorcycles.

Got it thank you.

Your next question will come from Jamie Katz from Morningstar. Your line is open.

Hi, good morning, and hoping you can elaborate a little bit on the 'twenty 'twenty, one and revenue growth for motorcycles and whether you can maybe buy stocks out between volume and price.

The expectations. Thanks.

Hi, Jamie at this time, we're not giving out that guidance, so where we're giving the guidance of 20% to 25% revenue growth off of off of 'twenty and 'twenty.

Okay.

Thank you.

What we can add is and you know in terms of pricing and I think that's important to note the pricing of our bikes in particular have not really changed to previous year. So we've kept more or less of a pricing constant and so that might help you.

Okay and on top of the dike.

Maybe help us think about when inventory and the dealer channel normalizes. It seems like this has been sort of the multiyear right sizing and but I'm not sure. If that is something that will persist through 'twenty and 'twenty, one and and then we will get sort of true where we wanna be to optimally you filled the channel or if there is.

Something else you guys are thinking thank you.

So Jamie this is Larry.

A couple of comments on dealer inventory I would say our approach the dealer inventory and supply management, it's really isn't of short term of temporary measure. It really is a fundamental change and how we're doing business going forward.

It's the key action to make sure on motorcycles out of the most desirable and the world.

And where we.

And we focused in 2020 on initiatives and and products that drive value and create that desirability.

And we essentially eliminated promotions and discounting while we focus on strengthening the brand. So we are very pleased with the results of the actions we've taken.

And we intend to continue to manage inventories tightly and.

Continue to drive that desirability.

And your next question will come from Greg <unk>.

But the <unk> from Wolfe Research your line is open.

Hey, guys. Good morning, it's actually Fred Wightman on for Greg.

If we just look at the top line guidance that you guys gave for the 'twenty. One 'twenty five period can you talk about what you think that gets you to in terms of market share is the way to think about it that youll probably get back to 2019 early 2020 of market share figure of some by the end of the 25 period or.

And we'd be thinking about it differently.

Yes.