Q1 2021 Harley-Davidson Inc Earnings Call

April 20, 2021

[music] with bank of America.

Ladies and gentlemen, thank you for standing by and welcome. The the route 2021 first quarter of Investor Analyst Conference call. At this time all of the N V sorry, the leasing only mode.

If you want to ask the question during the Q&A session you will need the press star one on your telephone keypad. If you require any further assistance. Please press star zero. Thank you.

And now I would like the welcome Mr. Shannon Burns manager of Investor Relations, Sir the floor is yours.

Good morning, everyone. You can access the slides supporting this call at Investor Day at Harley Davidson Dot Com click the earnings materials box from the center of the page. Our comments today will include forward looking statements that are subject to risks that could cause actual results to be materially different.

Those risks include among others matters, we have noted in our latest earnings release and filings with the SEC Harley Davidson disclaims any obligation to update information in this call. Joining me. This morning are CEO European sites, CFO, Jean together and Chief commercial officer of adult with Sullivan will also be joining us for Q&A.

The okay, let's get started.

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

As we look to 2021 it remains important to remember the unprecedented year debt was 2020.

I am hall of are very pleased with the pace of recovery, we've seen across our business and strong numbers of reflecting the implementation of our new strategy as demonstrated by the positive financial results this quarter.

We continue to manage through the impacts of COVID-19, with the extraordinary efforts of our global team keeping employee safety and community well being at the forefront.

We've overcome global shipping and supply chain challenges of definitely managing the effects of disruption ensuring that we were able to continue building and delivering the world's most iconic motorcycles.

As you can see today the actions we've taken to reshape the business through the rewire, leading into the early months of all of the hardware execution already of having a positive impact on our results in particular and the most important North American region.

We can see the initial signs of consumer excitement and optimism returning even if parts of the world is still lagging due to continued COVID-19 related lockdowns and delayed vaccination assets.

As we start to execute all of five year strategic plan. The hotwire I'm confident Harley Davidson in 'twenty or 'twenty, one is the significantly leaner faster and more efficient the organization and we continue improving and delivering in line with our H D number one culture.

I will talk more about I will talk more about about stage one of the hotwire later, but before I hand over to Jean I'd like to address the announcement, we made yesterday regarding the amendment tariff ruling by the EU.

The decision taken by the EU is unprecedented unfair and as the deliberate attempt to create a competitive disadvantage against our European competitors.

We are committed to fighting it and approaching the immediate legal challenge in Europe as we firmly believe that the original ruling on all of your eyes remains correct and should therefore be overturned.

Every big bike with selling America come straight from the hands of all the hard working men and women of Wisconsin and Pennsylvania.

It bears repeating if not for the tariffs, which are now threatening our recovering expert potential we could be investing in jobs that our American facilities, leading the world in the electric innovation Research Engineering design and advanced manufacturing instead, we are facing huge tariffs and trade war and the trade war not of our making.

So as you said so from the numbers, we delivered a very strong quarter and I'll hand, it over to gene for more detail Gina.

Thank you Jochen.

As Youll can mentioned, we had a good start try of fiscal year with first quarter results, reflecting stronger demand in and an improved economic outlook.

Total revenue of $1 $4 billion with 10% ahead of last year, driven by motorcycle unit growth behind the shift in the model year launch timing favorable motorcycle mix, thanks to our rewire product portfolio adjustments and the lapping of the start of the Covid shutdowns from 2020.

Operating income of $346 million was well ahead of last year with growth coming from both of our reporting segments.

Motorcycles and related products segment delivered $228 million, which is the $143 million better than last year, driven by units a stronger product mix with growth in our touring and cruiser family and lower operating expense versus a year ago.

The financial services segment delivered $119 million of the operating income $96 million better than last year due to lower actual losses, and a lower loss provision.

We delivered earnings per share of $1 68, with no significant restructuring charges taken within the quarter.

Global retail sales of new Harley Davidson motorcycles were up 9% versus last year behind strong demand for new model year product in our core touring and large cruiser segments in the U S.

Internationally the impact of Covid was felt more deeply as many key countries remained under stay at home protocols and shipping networks were severely strained by COVID-19 related challenges.

The Tam declines were driven by a 30% net reduction in the number of dealers and price increases taken across the portfolio as we work to restore profitability within those markets.

Across the dealer network worldwide retail inventory of new motorcycles was down 48% versus a year ago behind our strategic strategic shift on the supply and inventory management.

Inventories were up 60% over Q4, as we work to build back inventory ahead of riding season.

It's important to remember that our strategic shift on inventory management will result in 2021 of Q1 through Q3 inventories being lower than our historical averages. The shift is continuing to improve profitability and strength in pricing dynamics with Q1 motorcycles transaction pricing in the United States.

Up materially across all families most of which are at or near MSRP.

Looking at revenue total motorcycles segment revenue was up 12% in Q1 three points of this growth came from volume and motorcycle units and parts and accessories as we benefited from the re timing of the new model year launch and the lapping of the 2020 Covid shutdown.

One point of growth came from pricing and incentives as we eliminated the corporate discounts and incentives as part of the hardware strategy to rebuild the the desirability of our brands and products.

And finally, we realized six points of growth from mix as the increased contribution from touring more than offset the unit declines in our less profitable small cruiser models.

Absolute gross margin percent of 34.1 was up 5.1 points versus prior year, driven by stronger volume favorable mix and the lapping of heavier promotional periods in Q1 of last year.

As anticipated, while we did realize higher logistic spend in the quarter, we were able to offset with other savings across our supply chain.

Total operating margin of 18, 5% was up significantly versus prior year due to the drivers already noted.

Lower operating expense.

The lower expense was the result of the rewire actions executed last year as well as some timing shifts in our hardware related investments.

We do expect the favorability realized in the quarter tied to these hardware initiatives to be re timed and spent back in subsequent quarters.

The financial services segment operating income in Q1 was $119 million up over $95 million compared to last year net.

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

The total provision for credit losses decreased of $102 million from Q1, 2020, driven by in App, driven by an allowance decrease of $82 million and lower actual credit losses of $20 million.

The provision adjustment reflects an improved economic outlook and appropriately represents the estimated lifetime losses in our portfolio at the end of the quarter.

Actual retail credit losses continued to be down versus last year as a result of lower delinquencies as customers were supported by the recent federal stimulus packages and continued elevated levels of COVID-19 related loan payment of extensions granted the qualified customers.

Focusing in on H D F S as base business and new retail originations in Q1 were up 25, 8% versus last year behind higher new motorcycle sales as well as strong used motorcycle origination volume market.

The market share for new U S retail financing remains strong at 63, 5%.

At the end of Q1, 2021 H D. F. S had approximately $1 $7 billion in cash and cash equivalents on hand, and approximately $1 $6 billion in availability under its committed credit and conduit facilities for total available liquidity of $3 $3 billion.

Cash and cash equivalents remained elevated but were down approximately $800 million from Q4 2020 levels as we gradually pull cash back down to normalized levels.

<unk> continues to manage its debt to equity ratio of between five and seven times and well within the debt covenant of no higher than 10 to one.

H DFS is retail 30 day, plus delinquency rate was 2.14% down 123 basis points compared to the first quarter of last year. The retail credit loss ratio was also favorable at one 4% of <unk>.

133 basis point improvement over last year.

The favorable delinquency performance is largely due to federal stimulus assistance and elevated levels of Covid related extensions. The vast majority of the extended accounts have made at least one payment after the expiration of their extension period.

We do expect the delinquency rate to normalize over time, given the influx of stimulus funding and the improved economic conditions, it's likely losses could remain low through most of the year.

Wrapping up with Harley Davidson, Inc. Financial results, we delivered first quarter operating cash flow of $163 million up $171 million over prior year.

Key drivers of the improved cash flow were improved net income and lower inventory levels.

Cash and cash equivalents ended the quarter at $2 $3 billion, which is $856 million higher than Q1 last year, but $937 million less than the end of Q4 2020, as we gradually work down the higher cash balances that were held in the face of the pandemic.

Finally, the company's Q1 effective income tax rate was 24% slightly lower than Q1 2020.

Looking forward to the balance of the year of number of factors occurred in the quarter that had given us confidence in taking our guidance up over the previous estimate.

First we have better clarity on the cost impact of the supply chain challenges and our ability to adapt which we had built in is a significant headwind in our original plan.

Also the economic outlook has much improved with falling unemployment numbers of newly approved federal stimulus in the U S and continued progress on the global Covid Covid vaccine at Rollouts.

Finally, we have also been able to get a much better read on profitable demand for our new model year, 'twenty, one motorcycles, which is stronger than we had anticipated, particularly in our most profitable segments of touring and large cruiser.

As a result of these factors we are raising our motorcycles segment revenue growth to be 30% to 35% an increase from the previously communicated growth range of 20% to 25%.

Moving on the motorcycles segment operating income margins, assuming a successful outcome regarding the EU tariff situation. Our updated guidance is the range of 7% to 9% up from the previously communicated range of 5% to 7%.

Of this 200 basis point increase reflects an improved demand outlook and confidence in our ability to continue navigating through the global supply chain headwinds.

However, if we are unable to reach resolution negating the additional EU tariffs the impact would bring us back to our original guidance of 5% to 7%.

The financial services segment operating income growth guidance is now 50% to 60% an increase from the previously communicated range of 10% to 15% driven primarily by the loss provision adjustment.

Lastly, capital expenditures guidance remains flat to our original guidance of a $190 million to $220 million.

Given the shift of our model year launch cadence, we acknowledged that modeling out of this guidance can be a bit tricky given that we've added slide 12 to help provide transparency and how our revenue and profit margin of split.

We expect approximately 60% of our revenue to come in the first half of the year as we ride the momentum of our model year launch through the riding season.

As we get into the back half will start to see inventories come down from the peak in Q2 and in Q4, we will change over the factories to begin production of model year 'twenty two.

Finally, remember that we will begin lapping the impact of cost savings actions, we took in the face of the pandemic and our rewire savings initiatives beginning in Q3.

The patterns on inventory and shipments will be similar to what we experienced in the back half of 2020.

I'll turn it back to Yoking, who will take us through our progress executing against our hard wire of strategic plan.

Thank you Gina.

We believe the substantial changes implemented with the re why I have set us up to win and we will not rest here.

We will continue to explore additional opportunities as the hardware of strategic plan is implemented and as we continue to deliver organizational speed alignment and deficiency.

As we closed the first quarter, we can see that we've been through a significant transformation over the course of the past year.

These changes are manifested in strong first quarter results and reinforced our decision to move the model year to coincide with the start of riding season for the first time in all of them more than history.

This new journey is powered by Harley Davidson number one the high performing winning organization based on all the 10 defined leadership principles and sales of the powerful vision and mission of Harley Davidson.

Through the pandemic and into this first quarter, we've seen the willingness and growing capabilities of all the team to win.

All of future successes will only come from and the effort by everybody and all the team.

So thank you ought to empower the.

Davidson I know many of you are listening in today.

As you know the hotwire and its success is rooted in this our ability and our ambition to enhance our position as the most of us out of the motorcycle brand in the world.

Desirability of the motivating force driven by emotion.

Our DNA, it's embedded in our vision and it's at the heart of our mission and it's part of all of 118 year legacy.

Done right Harley Davidson desirability preserves the value of our customers purchases.

Because our brand beyond our riders and she was loyalty and drives engagement.

Our strategic ambition for the variability is very simple.

Design engineering advanced the most of this out of the motorcycles in the world reflected in quality innovation and craftsmanship.

Will the lifestyle of Brian valued for the motion reflected in every product and experience for riders and non riders alike.

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

Our ability provides the framework of our hardware of strategic plan and the framework for all the success measures.

I will now address a few specific highlights for the quarter delivered against some of the hotwire strategic priorities.

The first profit focus.

I am increasingly more confident of the market conditions and consumer appetite for our brands are iconic motorcycles and our new products.

The pandemic has provided the reminder of the power of getting outside reconnecting with our community and the significant freedom and the adventure that our brand represents.

We've experienced significant demand in the market for our products and our brands, especially since March of this year.

And the demand we are seeing is strongest in our most profitable segments.

This improved mix as the resulting in stronger year over year of motorcycles segment margins and can be attributed directly to all of it is our ability and rewire efforts.

This quarter has demonstrated the increasing strength of the market and the enduring powerful brand in both the USA and Canada as well as Asia.

Despite the continued impacts of the pandemic, especially in Europe. We also see post pandemic potential as part of our streamlined market strategy.

We maintain of long term focus on sustained profitable and is out of the growth in line with the Hotwire strategy. We're excited by the initial impacts.

As we begin to execute against the strategy of 70 2010 skewed towards stronghold segments of touring large cruiser and trike, we work hard to continue to solidify our position as leaders.

Acknowledging that the segments are the most effective of the global market in terms of all of profit focus.

With the Hot why we also made a commitment to introduce the series of models that align with our commitment to further increase the our ability and to drive the legacy of Harley Davidson in our core segments.

In this context today I'm pleased to introduce our new icons collection and this is the icon model the electric line Revival.

Launching April 26 items would it be extraordinary adaptations of production motorcycles, which look to a storied past and bright future.

Produced the only ones each model will have a limited serialized production run of 1500 bikes and deliver on what Harley Davidson has always done so well.

Design and historic moments.

The new icons collection models will be released within each more than a year with no more than two models being released in any given year.

Production of would be enough to fill the allocation of approximately one could be the globally.

Making each icon of rare and highly coveted model of for our riders while increasing the overall is our ability of all of the brand.

Selective expansion.

When we announced the hard while we also identify the focused expansion into new segments. They.

They are attractive and profitable segments that deliver balanced combination of volume margin and potential.

And they are well aligned with our product in front of capabilities with a clear path to leadership.

By narrowing our focus on those opportunities that meet these criteria, we make our intention clear.

We are in them to win supported by the right the allocation of time and energy balanced with the right investments in product brand and go to market capabilities.

This gets me to a PR and marketing launch of the Pan America adventure touring bike.

With the Pan America, we see the potential to build on our off road heritage and to innovate into the high growth and attractive margin segment of adventure touring.

We're targeting of new customer, but the new customer that wants the craftsmanship heritage and legacy of Harley Davidson and wants to be part of our community.

Span America was launched globally on February 22nd at the virtual launch.

<unk> by over 350000 participants across the world.

We caught up with the with movie Star, Jason the more to produce launch content the abilities, our ability and excitement for Pan America around the launch.

If you haven't already watched everything is the road the path dependent America I'd encourage you to do so.

To date the Pan American has received widespread global immediate of claim with over 2 billion media impressions at the 97% positive media sentiment.

With the Panama, Erica launched earning GAAP reports endorsement of as I quote the most important model release of memory signaling a shift in both philosophy and demographic.

The press writing reviews that have been going on for several weeks and all around the world have also been exceptional with overwhelmingly positive feedback from around the world.

The launch delivered the full sell out of the preorder allocation, which is currently in production and on schedule to be delivered to our dealers around the world from now onwards.

Adventure touring of the largest segment in many European markets and is a largely untapped market in North America.

We believe despite places us in a position to take market share in Europe and become market leader in the segment in North America.

There's also a clear affinity for the bike and other high potential global markets with the Pan America being awarded the best Spike of 2021 at the 42nd Bank of International Motor show.

And just this morning I received the extraordinary feedback from our team in China at the Shanghai Automotive show of following the launch of press conference of Pan America.

Looking forward, we have great plans to expand on Pan America was unviable of innovation and design of new products that will reach new audiences and as we look to unlock new customers and opportunities.

Following on from the Pan America launch, we continue to execute on our priority to selectively compete in attractive segments with where we can profit and win.

We're excited for the upcoming launch of our next product from the rest of the next platform, which we redefined the premium middleweight cruiser segment.

We intend to increase the profitability of our offerings overall is in the small to mid sized crews the segment and change the competitive landscape.

Leading the electric.

Combustion remains the core of our business. However, we see great potential for long term growth in electric vehicles.

With life why are widely regarded as the leading electric motorcycles in the world. We are excited about our future in the space.

Earlier this year, we announced our intentions to work through with the dedicated EV Division and this work is now in full swing.

This division will allow for dedicated level of strategic focus required to deliver desirable growth in the segment.

In the quarter, we hired our Chief <unk> Officer to help guide this focus as we look to build on the success of LIBOR here and win in electric.

By investing.

And the electric technology remains of our intend to be at the forefront of innovation and development as we look to be the pioneers and EV.

We'd be telling you more about our dedicated EV plants in Q2.

Growth beyond bikes, we've always been about more than the machine and our related businesses are huge opportunities for long term expansion of the brand.

Parts and accessories, and general merchandise form part of the Harley Davidson lifestyle and together with the H D. S. S playing an important role in inspiring existing of new customers to discover the adventure.

Each business plays an important role in our overall vision and mission.

With the enormous potential to grow our customer base both of the right at the non writers shaping our future success as the global lifestyle brands.

And parts and accessories with customization as part of all the heritage we continue working towards enhancing our position as the destination for high quality possible all of our writers both with new and used motorcycles.

As part of this new approach the P&A business. The Pan America reveal included both P&A and general merchandise designed specifically for holiday of it's an adventure touring motorcycles and riders.

Harley Davidson's heritage underpins, our general merchandise business. It is authentic the motorcycles culture and puts us in a unique position to reach beyond motorcycle riders and into the sport and lifestyle space.

With prominent brand collaborations in the works for general merchandise with the long term potential to leverage our brand value.

We'd be telling you more about this important strategic pillar for future growth in the second half of the year.

As evidenced by the strong performance this quarter H D of edges of strategic assets with a track record of delivering growth and profitability.

It is our goal to make H D F. As the preferred choice for all Harley Harley Davidson riders by building digital capabilities and the drive of the innovators of financial services.

H DFS is integral to a Harley Davidson success with expansion of Europe on the Horizon. We are excited about its future.

Led by H D Inc. S. Earlier this month as you know we announced the HD certified the first certified pre owned holiday from motorcycles program designed to lead our industry satisfy all of existing loyal writers the ore to reach new customers venture into Harley ownership for the first time.

H D certified at the strategic effort to strengthen our competitive position and as part of our new approach to the used motorcycles marketplace along.

Line to the strategic priorities of the hotwire targeting long term profitable growth.

The partnership with our strong dealer network, we want to enhance the overall customer experience the car.

<unk> brand loyalty, while supporting growth in parts and accessories channel merchandise NH DFS built around the used Harley Davidson market.

To date over 350 of our U S dealers have signed up to the program representing 63% of the USD The network on the day of launch.

Each certified pre owned motorcycles will be sold with the 12 month limited warranty on the engine and transmission and will include a 12 month complimentary of members who've been hawk of owners group.

In addition, the special financing rates will be available through the HD vest to support the program.

We believe HD certified will drive Harley Davidson connectivity and engagement with our customers.

The overall customer experience, allowing more right is to have access to all of motorcycles, providing them with an added level of confidence in the purchase of an invitation into the holiday Davidson community.

If you watch the summarized.

The strong Q1 financial performance, despite the supply chain challenges of the quarter and an increase in demand gives us the confidence to increase our guidance as Gino mentioned to deliver strong performance for the full year.

That said, we expect the unprecedented pandemic related supply chain and logistics challenges to continue and recognize the potential associated risks well into the year.

Our brand is powerful and it is one of the most recognized globally.

With 118 years of uninterrupted heritage craftsmanship and iconic design, we have unique no other brand even comes close to holiday of Ism.

We've been through significant change, but I believe this change of set us up to be stronger than ever before.

We will not rest until we have best in class in everything we do.

I will now take your questions.

Okay.

Yeah.

Thank you in order to ask a question. Please press star one on your telephone keypad to be placed in the queue.

We ask you to limit yourself to one question. If you have any further questions. Please press star one against the reenter the queue.

The first question is from the line of Craig Kennison.

From William Blair. Your line is open.

Yeah, Hi, its Craig from Baird.

Thanks for taking my question, it's on Pan America, We've certainly heard good feedback from dealers and the desirability of that particular model, but are you satisfied with the availability of the model. We've heard a lot of frustration I think among dealers, saying that it's just an incredibly hot product that they can't get their hands on it just trying to figure out why.

That's part of the plan for scarcity or whether you're struggling to get enough bikes in the channel.

No not struggling at all quite the opposite of what we've always said that we of decoupling. The launch of the the online launch from the actual delivery of our bikes. So the bikes will be delivered as of May in the U S market and as of June in the international markets and we've launched the bikes independently because.

We figured we wanted to build the excitement around the product we wanted our cut of our dealers.

In particular.

The press two tests to get the test results out there before we actually ship all of bikes, we have quite of an astonishing amount of free orders already and we are ready for launch, but as we said we wanted to decouple the actual marketing launch from the delivery of all of bikes and get everybody of 100% ready. So we're very happy with that and the.

The the dealers and the products are shipping as of next month.

Okay. Thank you.

Your next question is from the line of where all the arms from Bank of America. Your line is now open.

Oh good morning, Thanks for taking my question.

Okay, and I was hoping you could talk about dealer feedback in general.

You've got so many initiatives going on right now you've got the the model of your timing of launch changed which happened this quarter. So you've got some feedback on on how that feels to the dealers. So far you've got electric you've got the certified program of holding out.

You've got now you've got these icon models like can you can you maybe just.

Talk about whats been really good so far of broadly from from the dealer response of maybe maybe what what has not been good so far and have you thought a lot of about just how many initiatives of your question on the the dealers at the same time and if that could create issues.

Yeah. Thanks for the question I mean.

It's a lot of change in just like we change as a company of our dealers need to change with us, but the I I personally have heard nothing about the positive news the profitability is up significantly.

And all of the programs, whether that's the change of the model year of our certified programs with the icon, we are literally launching as we speak now.

And and Pan America, I've only heard positive feedback so.

You know what I mean, you guys are talking to dealers all the time, so you're getting the feedback obviously, we know that we are you know we had.

Had supply chain issues in the in the first quarter. So getting the bikes out was a bit of of a challenge. It was we could go into the perfect storm, because we had severely stressed transportation networks.

We had high demand.

We had historically bad weather.

In February of not just in Texas, but also on the east coast of where the bikes manufacture of insignificant raw material and component shortages you put that together and then switching over to the new logistics firm and trying to get the trucking companies to come on the weekend at the night certainly posed the challenges, but we've overcome those challenges.

And we are we believe we made the right decision. So overall I would say very positive feedback but of course, our deliveries were challenged but if you look at the results of an hour.

The market share in our retail sell through it shows that the the measures of working.

Terrific. Thank you so much.

True.

Your next question is from the line of Shawn Collins from Citigroup Research. Sir Your line is now open.

Yeah, Great, a yoga and gene of idle and Shannon good morning.

Good morning.

Hey, I wanted to ask about Harley retail sales in Europe, you know all of us.

She is a soft quarter down 36% the reach.

Sales of about 20, roughly 20% of Harley volumes I know you mentioned Covid Lockdowns model changes and transport shipping delays in Europe can.

Can you provide more commentary on some of these things and kind of your of your new and updated strategy of free for Europe and also maybe just touch upon what type of.

How severe the shipping delays were in Europe, obviously, there was the Suez Canal incident, and global supply and supply chain congestion, but any color might be helpful. Thank you.

Yeah.

So this is the bell.

And that's why I said I'm happy to take your question I think all of the factors that you mentioned were certainly part of the situation in Europe in Q1, starting from the Covid Lockdowns, which continue as well as the shipping disruptions exactly as you mentioned from the Suez Canal and just the availability of shipping containers globally. It is important to also note. Some of the other changes that were driven by of hardware strategy.

And in terms of our sportswear line up as long as the euro for Euro five compliance.

That made some of the the volume of availability for the first quarter to be lower than historical levels. Looking forward, we think that I've kind of America's Yakin mentioned is an incredibly important launch from the European region, and it's about a third of the overall market size of or very much excited about the potential for that in 'twenty, one and beyond.

And as well all of the actions that we're taking and extending the new product kind of of that Max platform will allow us to be competitive.

Competitive in any way in the.

The smelter middleweight cruiser, which I think will also have a positive impacts of the yard. So a combination of certainly of very stressed Q1 on a variety of fronts the opportunity going forward all of the content.

Great.

Helpful.

A quick follow up staying with Europe, obviously, you mentioned the the EU tariff development yesterday I'm newer to the industry, but this was the surprise for me can you just walk us through some of the developments and kind of narrow niche of leading up to this news yesterday. Thanks.

Yeah.

Yeah, I mean, I'd like to refer to our press release that we put out yesterday I mean, essentially the the the Brussels at the request of the EU.

Withdrew the <unk>. The fight for you is that the that we had and that allowed us to import products from our international manufacturing into Europe at 6%.

The tariffs and that was revoked and the and that's obviously something we will not accept the rig.

Vocation of essentially we would lead to an increase from the 6% to then the total of 31% and assuming the higher tariffs between the U S and Europe come into effect in June two of total of 56%, which obviously is unacceptable and make you are uncompetitive in an important.

Reach of like Europe, So for more news if you don't mind I'd like to refer to our press statement of moving to what I said earlier.

Okay, great. Thank you for the time and insight.

Your next question is from the line of Jamie Katz from Morningstar. Your line is now open.

Hey, good morning, I guess piggybacking on that question can you sort of.

Share with us of what the timeline looks like for repealing the.

Of this tariff and what the probability is of it being sort of step back before the June start date.

Yeah.

Well, we are launching in an appeal as we speak.

And the and you know from there on it takes its course cant really disclose too much at this point, it's the lowest.

The charge of the process, but we will certainly communicate more as soon as we know more but we will be asking for.

The temporary relief, which will essentially of luck would essentially allow us to continue to import at the at the lower import rate until a final ruling is being made but the we don't know until we know so that's that's all we can say at this point.

Okay.

Thank you called out stimuli stimulus as a potential helper and I'm curious if you can remind us or quantify what the magnitude of that how it might've been in prior stimulus offerings. Thanks.

Well I don't think we can allocate it makes it a number but obviously the stimulus that has been received by our customers and consumers you know I haven't had the positive effect overall in the economy. So we assume the same is the it's the case for for our consumer but to quantify that is actually impossible.

Thank you.

Your next question is from the line of James Hardiman from Wedbush Securities. Your line is now open.

Hey, good morning.

Thanks for taking my question I'm not exactly sure how to ask the inventory question, but.

Certainly every dealer that we talk to says if they had more bikes they could they could sell more bikes seem.

It seems like you guys are coming around to the idea that maybe the the.

2020 drawdown was it was a bit overdone.

Domestically and internationally, but my question is.

What do you think is the right amount of inventory for the dealer channel.

Whether it's units or or better yet sort of days on hand.

And when do you think you'll get there ultimately.

Do you see I get that part of the answer is complicated by seasonality in which quarter. So everyone. I answer. This it sounds like you had some commentary about Q2 of <unk>, but.

So how do you see where do you see yourself, finishing inventories for for the year.

Well first of you know.

Obviously demand has strengthened the as I said in our in my speech earlier.

Especially a pick up in an hour in the March retail numbers.

And as a result, we've modified our production strategy. We are now running at maximum available available capacity in Q2 and we.

We are assessing opportunities to increase production in the third and the fourth quarter in support of the current model year of bearing in mind, though that we would be changing over production to the next model year in early Q4, so those perhaps will be happening then and where the car in the process of working through the timing right now so that we can.

Capitalize on the strong demand that we're seeing today, but obviously without compromising on the growth in 'twenty two.

That said.

As I said the.

Global supply chain has been challenged I think the way we came out of.

The Q1 is quite extraordinary and the and the dealers that want more you know they are getting more to an extent of where the.

You know.

Where we continue to make sure that the desirability of all the brand.

It is taken into consideration and the those dealers that can sell more of their taking preorders and they are selling those spikes as soon as debt getting them and I think you see reflected in the strong retail numbers that we don't believe we've missed missed our sales in the quarter.

And then maybe just a clarification and I apologize.

You brought it up sort of the pickup in March retail numbers can you maybe quantify.

How retail trended within the quarter. Obviously, there was a really there was an easier comparison, obviously towards the end of March.

But it sounds like.

Youre seeing is it was more than that so I don't know if you want to compare it to 2019.

But maybe speak to the to the relative strength over the course of the quarter.

Yeah.

Yeah, I mean, I don't think you can compare with 2019 because in March of 2019, we actually Oh actually in 2020, we cannot compare the 'twenty 'twenty as well.

No.

<unk> 19 of icon really compared other than the.

The demand or the the we still had the push model the way, we pushed a lot of bikes into the market and and the MSRP or transaction values were well below MSRP, we're not seeing that we are seeing and transaction values near or at the MSRP, which is great. We've seen used bike prices up significantly.

But we saw.

We're not giving monthly guidance by the time, we saw a significant pick up in March in comparison to January February which you know has two effects.

No.

Better than expected weather in March in many parts of America, and and obviously our mode of again hitting retail as well with the.

And the incentives for consumers to buy because of the stimulus package that we mentioned earlier and that that's sort of the significant uptick in March and as I said, we've adjusted our production strategy Accordingly, and hence our increased guidance for the year.

Got it thanks, Okay. Thanks, everybody.

Your next question is from the line of Joseph Spak from RBC capital markets. Your line is now open.

Hi, Thanks for taking the question.

Maybe.

Just some housekeeping you mentioned.

Some lower expense this quarter that help from some timing shift in hard wire related investments how much did that help and when should we expect that to.

To come back and then maybe similarly at least for the year can you quantify how much of the logistics and supply chain headwind will be.

Sure for Opex.

As you look at it I would say roughly half of the favorability that you saw the play through in the quarter.

Is associated with eye rewire initiatives and is it will stick through the balance of the year and about half of that will be re time to subsequent quarters.

In terms of logistics and we're not giving you additional detail I'll. Yeah. We did see increased costs, we were able to offset it with other favorability within supply chain across the quarter and as we think about our guidance for the full year, we factored in kind of continued handle the headwinds on logistics Inc.

That updated guidance.

Okay, and then in yoga and just to clarify.

The Europe issue if youre in appeal you can still import at current rates and then in the worst case scenario, where you lose a decision does that mean, you would look to potentially exit Europe or are there other potential paths you could take.

Ah well exited Europe is certainly not an option and as I mentioned, we are appealing now and we should be knowing in the in a few weeks' time.

Granted if it's not granted obviously of the increased tariffs.

Come into effect right away and hence.

Why we've said you know if we take the worst case scenario that that's why the adjusted the guidance as Gina mentioned would essentially go back to.

The level of said, we communicated early on in the year. So I mean, we're looking at all options right now we are vigorously.

Obviously defending our position and we believe that the original ruling of the Bureau of ours is correct and we are hoping for a resolution and a way of looking at the all our piece of routes in Belgium, and the U U and that's the primary focus right now.

Thank you.

Your next question is from the line of Garrick Johnson from BMO capital markets sort of your line is open.

Okay. Thank you. So many I don't know where to choose how about Asia Pacific you know the dynamics there.

The impact from exiting certain markets that might not be profitable as well as the queue Jay partnership what's coming through there. So what are the dynamics in the issue right now.

Yeah.

Let me start with Q, Jay So we continue with our partnership.

With Q, Jay and you know, we're not sharing specific plans about all of product launches, but we continue to work with SKU, Jay so that hasn't.

The changed and we're seeing very strong demand in China I mentioned earlier, we're just at the Shanghai Auto show very strong feet very strong feedback of four new Pan America launch and the overall, we have high hopes for the Chinese market. It's a huge opportunity that we're tapping into an all of the efforts that we have.

Taking out of markets that really didn't make a difference from a profitability point of view, we're putting into the core markets in Asia, mainly China, Japan, Korea, and a few others, but we think theres long term significant opportunity in the region. There of I don't know if you want to add anything yet.

Yeah, just to build on that I think you see some of that reflect the and the results of the quarter. Despite all of the actions taken as part of hard wire in terms of the country presence.

And pricing actions and even our product lineup.

And adding to that much of it continues to be of very challenge of supply chain. Both for not only Europe, but also for the Asia Pacific region. I think it was a strong quarter in terms of profitability in comparison to our 2020 with ops. So I think that that again as of the credibility of the hard wire strategy as we look internationally age of continuing to build upon.

On a more profitable offering.

And the story of profitable growth towards the future.

And if I may add something actually related to euro because the question came up you know you look at the shipments and you're saying Oh, you are down so much and with all the reasons that the Delta has mentioned, but if you actually look at the profitability is up dramatically so or the or the actions we've taken as part of the rewire working out.

And and as I have mentioned also you know exiting the non profitable segments is essentially allowing us to sell higher profit segments, and it's showing up very clearly in the significant increase in profitability. Despite the lower numbers, but we do believe as Europe comes out of the lockdown.

Are there certain of the opportunity for more sales.

Okay. Thank you and since it seemed everyone got to throw another one in there of the $102 million credit loss benefit of it looked like there was the big surprise there right. Your guidance went from 10% to 15% to 50% to 60% up so how much of that is sort of a one time thing and why did that occur as the one time.

Issue.

Well I don't know that I would say that it was a surprise when you think about how the the loss provision is calculated you know a large part of it is based on the macroeconomic conditions, which saw a significant improvement from.

When we set the reserve at the end of Q4. So when you think about what that loss reserve is doing it's protecting for the lifetime losses at the loan and again some of those elements.

Our are outside of our of direct control and very consistent with what you saw across banking last last week in favor of reporting earnings and where we're seeing these loss reserves come back down.

And so I don't know that I would classify it as of as a surprise of sorts of I'm just given how we calculated every every quarter.

Okay Fair enough. Thank you Peter.

Thank you.

Yeah.

Your next question is from the line of Ryan Sundby from William Blair. Your line is now open.

Yeah, Hi.

Thanks for taking the question.

Youll kind of sound like 350 dealers or 63% of the network.

Lineup for the AC sort of ex program.

I noticed the starting up now, but can you talk about what kind of ex consumer interest in the sand and the progress so far and then what's the pushback that are hesitant see maybe from the.

And the base so it takes up the.

Some of the program.

Yeah. Thanks, Brian So the consumer interests I can't tell you anything about it because we were literally not launching today of the last couple of months, we've been signing up all the dealers and we're going live.

As we speak so consumer interests I wouldn't be able to go which.

Certainly in the next few weeks and then report on our with our Q2 results.

If you look at the historic.

The programs that we've rolled out the dealers I would say this is on the very high end getting the such number of dealers the such a high number of dealers signing up the S that early two of new programs. So we are really pleased with the 63% of have not even having had any of any launch in the experience in the market.

We believe this number will continue to grow but overall in the from a historical context, that's actually very high of a sign up our dealer network.

Your next question is from the line of Joe of the Belo from Raymond James Your line is now open.

Sorry to harp on this EU tariff question, but I just wanted to get more clarification on your record of at this point you mentioned that you filed an appeal, but my first question is who hears that appeal is it the same court that ruled against you or is it another court.

And beyond the legal route there is a other route which is the political one negotiation between maybe the U S. T. R. In the EU is the ever since that the body administration has taken up your case here just talking to the European Union or that's not on the agenda at this point.

A good question I mean as you can imagine we are pursuing all available remedies, we do not talk about individual conversations, but obviously conversations ought to be had.

We are filing as we speak for extended reliance for our five feet of ice, which if granted will allow us to you know the leak of certainty to continue to eat two of to import.

Or at the rate of 6% and that's all we can say really at this point in time, we're looking at all avenues, but I wouldn't say that of having those be always revoke doesn't mean, we have a chance to appeal of them. We do have and they are there are several opportunities that we have and we will consider those.

The strength of success I can't really estimate at this point.

Okay.

Your next question is from the line of Brent enrolled from Northcoast Research. Your line is now open.

Good morning, congratulations on a strong quarter.

My question was largely on the new dealer incentive program, you're implementing are starting in Q3 could you kind of talk about.

How you are raising the bar for dealers and a.

How it might be a little more difficult for the achieve those incentives versus what they saw in the past.

Thanks.

The muted L.

Can you hear me now yeah, but of Dallas. Thank you sorry about that okay I'm back.

Thank you for the question. So certainly that is an important component of the hardwired strategy ex path to realign our incentive to work together to make sure that we are working towards the same goals.

Profitability and growth.

And the program. The one that we are as you mentioned of implementing over the course of the year. We think that it is really important that we work with our dealer to deliver the best possible customer experience a strong profitable growth for the future of this program is certainly an important component of aligning those incentives.

And we look forward to seeing it.

<unk> implemented in the in the course of the year.

Yeah.

Your next question is from the line of David Macgregor from Longbow Research. Your line is now open.

Good morning, everyone and congratulations on the progress to date are I guess just on the deal or a question of what was there you mentioned dealer count was down about 30% year over year do you expect that to stabilize at this level are you expecting dealer count to maybe the undergo some further reductions as we move forward does it.

Talk maybe a little about how you expect that dynamic to play out in the I guess, just with respect to the CFS.

The explanation.

On the revision, but can you just talk about what youre seeing in terms of the average FICO scores that are getting approved and in credit trends generally overall. Thank you.

Certainly I'm happy to take the first part of the question. So of the Q1 and to your point of discontinuing some of additional closure, it's both of them in the last of internationally and as the comprised of members to the beginning of the same period in 2020.

That's down about 160 dealers when.

We're building, what we think of a high performance and very competitive network of dealers.

Our aim is free to be the best in industry and that is obviously as I mentioned before really critical of what we're trying to deliver to our customers in terms of the customer experience.

We do think that there is a handful more and as they continue to finalize the the actions around the network structure and then.

All with the intention of driving and growing a strong profitable dealer network for the future.

And referring back to the previous question anything you anything construction of an important part of that as well to help drive that profitable growth.

And in terms of the H D. F. S N. The FICO scores, we have seen no material change in our FICO scores of Sweden as we've gone throughout the quarters here and in terms of like our prime versus sub Prime. We continue you know 80% of our loans are in that that prime status, So really no material change.

Your next question is from the line of Greg.

But the skiing and from Wolfe Research. Your line is now open.

It's actually Fred Wightman on for Greg.

You issued the midterm targets last quarter, you had mentioned that you were looking to move the company towards more of an under promise or towards more of an under promise and over deliver mindset. I mean, just given the pretty meaningful increase from the 'twenty to 'twenty one guidance here in the first quarter can you talk about how we should view of those 20 of twenty-five targets from.

The last quarter.

Yes.

Well I don't know that we use exactly those words and he just said we sat out realistic targets for 'twenty, one and realistic guide alright realistic guidance for 'twenty, one and realistic targets for the five year plan based on what we what we knew at the time and we're not adjusting our five year goals and remember when we when we.

Set out of those five year target they were base. The base year was 2021, so as our current year of continues to strengthen that algorithm that we laid out their growth on top of that stronger that stronger base. So the.

The guidance now for 2021 reflects our best estimate based on some strengthening in demand as our ability to navigate navigate the supply chain and just are you know our ability to to see that that profitability start playing through.

Yeah.

Your last question is from the line of the legal finance from Morgan Stanley. Your line is now open.

Congrats on the quarter as the management team, it's Cleve made great strides in improving margins. The question is on the revenue growth. The beyond 'twenty. One is this mainly going to be a function of pricing increases and improvements to mix as you mentioned in your comments or do you eventually.

We have a plan to increase the shipments beyond sort of 2019 levels I understand yoga and your focus on desirability of what gives you conviction that you can remove models from the lineup of maintain less inventory in your dealer channel with dealers in the network and still grow shipments is there a trade off between growth and margins here. Thanks.

Yeah.

Well I would say less is more in this context being more focused.

On on on on the models that make the difference being selective and product launches and what we focus on them you know should should allow us to continue to grow our business. So I think the philosophy of having it of a bloated product portfolio and thinking every new model you introduced sell it's more one of the strategy.

That was really unfocused Ah is not the strategy that makes any sense. So I would say in this context really less of small and we would certainly look at every opportunity to improve our top line with whatever that might be in debt could be selective price increases in some markets that where we see an opportunity it could be increased shipments assuming.

The demand is there, but not the operating with the push more of that we used to but making sure of the demand is there before we ship and obviously mix as soon as you focus your portfolio of your mix improves.

And the focus within the mix is towards the higher profit models. So I think all of that it's all as I said earlier built around the desirability, which is the primary driver of our strategy.

Yeah.

Especially in Burns. Please go ahead.

Alright, that's our call for today, thanks, everyone for joining us and hope you have a fantastic day.

Thank you everybody.

Yeah.

And with that this concludes today's conference call. Thank you for attending you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome. The degree of 2021 first quarter of Investor Analyst Conference call. At this time, all attendees are eating a listen only mode.

If you want to ask the question during the Q&A session you will need the press star one on your telephone keypad. If you require any further assistance. Please press star zero.

Thank you.

And now I would like the welcome Mr. Shannon Burns manager of Investor Relations, Sir the flow issuance.

The risks include among others matters, we have noted in our latest earnings release and filings with the SEC Harley Davidson disclaims any obligation to update information in this call. Joining me. This morning are CEO European sites CFO, Jean together and Chief commercial officer of adult will Sullivan will also be joining us for Q&A.

Okay, let's get started.

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

As we look to 2020 one it remains important to remember the unprecedented year debt was 2020.

I am hall of are very pleased with the pace of recovery, we've seen across our business and strong numbers, reflecting the implementation of our new strategy as demonstrated by the positive financial results this quarter.

We continue to manage through the impacts of COVID-19, with the extraordinary efforts of our global team keeping employee safety and community well being at the forefront.

We can see the initial signs of consumer excitement and optimism returning even if parts of the world is still lagging due to continued COVID-19 related lockdowns and delayed vaccination assets.

As we start to execute all of five year strategic plan. The hotwire I'm confident Harley Davidson in 'twenty or 'twenty, one is the significantly leaner faster and more efficient organization and we'll continue to improving and delivering in line with our H D number one culture.

The decision taken by the EU is unprecedented unfair and as the deliberate attempt to create a competitive disadvantage against our European competitors.

We are committed to finding it in approaching the immediate leader challenge in Europe as we firmly believe that the original the ruling on all of the <unk> remains correct and should therefore be overturned.

Every big bike, we sell in America come straight from the hands of all the hard working men and women of Wisconsin and Pennsylvania.

It bears repeating if not for the tariffs, which are now threatening or recovering export potential we could be investing in jobs that our American facilities, leading the world in the electric innovation Research Engineering design and advanced manufacturing instead, we are facing huge tariffs and trade war and the trade war not of our making.

So as you saw from the numbers, we delivered the very strong quarter and I'll hand, it over to junior for more details Gina.

Thank you Jochen.

As Johan mentioned, we had a good start turf the school year with first quarter results, reflecting stronger demand in and an improved economic outlook.

Operating income of $346 million was well ahead of last year with growth coming from both of our reporting segments. The.

Motorcycles and related products segment delivered $228 million, which is $143 million better than last year, driven by units a stronger product mix with growth in our touring and cruiser family and lower operating expense versus a year ago.

Of the financial services segment delivered 100 of $19 million of the operating income $96 million better than last year due to lower actual losses, and a lower loss provision.

We delivered earnings per share of $1 68, with no significant restructuring charges taken within the quarter.

Global retail sales of new Harley Davidson motorcycles were up 9% versus last year behind the strong demand for new model year product in our core touring and large cruiser segments in the U S.

Internationally the impact of Covid was felt more deeply as many countries remained under stay at home protocols and shipping networks were severely strained by COVID-19 related challenges.

The Tam declines were driven by a 30% net reduction in the number of dealers and price increases taken across the portfolio as we work to restore profitability within those markets.

Across the dealer network worldwide retail inventory of new motorcycles was down 48% versus a year ago behind our strategic strategic shift on the supply and inventory management.

Inventories were up 60% over Q4, as we work to build back inventory ahead of riding season.

It's important to remember that our strategic shift on inventory management will result in 2020 one of Q1 through Q3 inventories being lower than our historical averages the.

The shift is continuing to improve profitability and strength in pricing dynamics with Q1 motorcycles transaction pricing in the United States up materially across all families most of which are at or near MSRP.

Looking at revenue total motorcycles segment revenue was up 12% in Q1 three points of this growth came from volume on motorcycles units and parts and accessories as we benefited from the re timing of the new model year launch and the lapping of the 2020 Covid shut down.

And finally, we realized six points of growth from mix as the increased contribution from touring more than offset the unit declines and our less profitable small crews of their models.

Absolute gross margin percent of 34.1 was up 5.1 points versus prior year, driven by stronger volume favorable mix and the lapping of heavier promotional periods in Q1 of last year.

As anticipated, while we did realize higher logistics spend in the quarter, we were able to offset with other savings across our supply chain.

Total operating margin of 18, 5% was up significantly versus prior year due to the drivers of already noted.

Lower operating expense.

The lower expense was the result of the rewire actions executed last year as well as some timing shifts in our hardware related investments.

We do expect the favorability realized in the quarter tied to these hardware initiatives to be re timed and spent back in subsequent quarters.

The financial services segment operating income in Q1 was $119 million up over $95 million compared to last year net.

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

The total provision for credit losses decreased $102 million from Q1, 'twenty 'twenty driven by in App, driven by an allowance decrease of $82 million and lower actual credit losses of $20 million.

The provision adjustment reflects an improved economic outlook and appropriately represents the estimated lifetime losses in our portfolio at the end of the quarter.

Focusing in on H D F S as base business, new retail originations in Q1 were up 25, 8% versus last year behind higher new motorcycle sales as well as strong used motorcycles origination volume.

The market share for new U S retail financing remains strong at 63, 5%.

Cash and cash equivalents remained elevated but were down approximately $800 million from Q4 of 2020 levels as we gradually pull cash back down to normalized levels.

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

H D F S. As retail 30 day, plus delinquency rate was 2.14% down 123 basis points compared to the first quarter of last year.

The retail credit loss ratio was also favorable at 1.4% of 133 basis point improvement over last year.

Well, we do expect the delinquency rate to normalize over time, given the influx of stimulus funding and the improved economic conditions, it's likely losses could remain low through most of the year.

Wrapping up with Harley Davidson, Inc. Financial results, we delivered first quarter operating cash flow of $163 million up $171 million over prior year.

Key drivers of the improved cash flow were improved net income and lower inventory levels.

Finally, the company's Q1 effective income tax rate was 24% slightly lower than Q1 2020.

Looking forward to the balance of the year of number of factors occurred in the quarter that had given us confidence in taking our guidance up over the previous estimate.

First we have better clarity on the cost impact of the supply chain challenges and our ability to adapt which we had built in is a significant headwind in our original plan.

Also the economic outlook has much improved with falling unemployment numbers of newly approved federal stimulus in the U S and continued progress on the global Covid Covid vaccine at Rollouts.

As a result of these factors we are raising our motorcycles segment revenue growth to be 30% to 35% an increase from the previously communicated growth range of 20% to 25%.

Moving on the motorcycles segment operating income margins, assuming a successful outcome regarding the EU tariff situation, our updated guidance at the range of 7% to 9%.

From the previously communicated range of 5% to 7%. There's 200 basis point increase reflects an improved demand outlook and confidence in our ability to continue navigating through the global supply chain headwinds.

However, if we are unable to reach resolution negating the additional EU tariffs the impact would bring us back to our original guidance of 5% to 7%.

The financial services segment operating income growth guidance is now 50% to 60% an increase from the previously communicated range of 10% to 15% driven primarily by the loss provision adjustment.

Lastly, capital expenditures guidance remains flat to our original guidance of a $190 million to $220 million.

Given the shift of our model year launch cadence, we acknowledged that modeling out this guidance can be a bit tricky given that we've added slide 12 to help provide transparency and how our revenue and profit margin of split.

We expect approximately 60% of our revenue to come in the first half of the year as we ride the momentum of our model you launched the riding season.

As we get into the back half will start to see inventories come down from the peak in Q2 and in Q4, we will change over the factories to begin production of model year 'twenty two.

Finally, remember that we will begin lapping the impact of cost savings actions, we took in the face of the pandemic and a rewrite of our savings initiatives beginning in Q3.

The patterns on inventory and shipments will be similar to what we experienced in the back half of 2020.

I'll turn it back to Yoking, who will take us through our progress executing against our hard wire of strategic plan.

Thank you Gina.

We believe the substantial changes implemented with the re why I have set us up to win and we will not rest here.

We will continue to explore additional opportunities as the hardware of strategic plan is implemented and as we continue to deliver organizational speed the alignment and deficiency.

As we close this first quarter, we can see that we've been through a significant transformation over the course over the past year.

This new journey is powered by Hollywood Davidson number one the high performing winning organization based on all of 10 defined leadership principles and sales of the powerful vision and mission of Harley Davidson.

Through the pandemic and into this first quarter, we've seen the willingness and growing capabilities of our team to win.

The future successes will only come from and the effort by everybody in our team.

So thank you of team Harley Davidson I know many of you are listening in today.

As you know the hotwire and its success is rooted in the desirability and our ambition to enhance our position as the most of this out of the motorcycle brand in the world.

Desirability of the motivating force driven by emotion, it's an hour of DNA, it's embedded in our vision and it's at the heart of our mission and it's part of all of 118 year legacy.

Done right Harley Davidson desirability preserves the value of our customers purchases.

Our brand beyond our riders and she was loyalty and drives engagement.

Our strategic ambition for these other ability is very simple.

Design engineering advanced the most of this out of the motorcycles in the world reflected in quality innovation and craftsmanship.

Will the lifestyle of Brian valued for the emotional reflected in every product and experience for riders and non riders alike.

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

Our ability provides the framework of our hardware of strategic plan and the framework for our success measures.

I will now address a few specific highlights for the quarter delivered against some of the hotwire strategic priorities.

The first profit focus.

I am increasingly more confident of the market conditions and consumer appetite for our brands are iconic motorcycles and our new products.

The pandemic has provided the reminder of the power of getting outside reconnecting with our community and the significant freedom and the adventure that our brand represents.

We've experienced significant demand in the market for our products and our brands, especially since March of this year.

And the demand we are seeing is strongest in our most profitable segments.

This improved mix as the resulting in stronger year over year of motorcycles segment margins and can be attributed directly to all the desirability and rewire efforts.

This quarter has demonstrated the increasing strength of the market and the enduring power of our brand in both the USA and Canada as well as the Asia.

Despite the continued impact of the pandemic, especially in Europe. We also see post pandemic potential as part of our stream line market strategy.

We maintain of long term focus on sustained profitable entities out of the growth in line with the hotwire strategy the way.

We're excited by the initial impacts.

As we begin to execute against our strategy of 70 2010 skewed towards stronghold segments of touring large cruiser and trike, we will work hard to continue to solidify our position as leaders acknowledging that these segments of the most attractive of the global market in terms of all the profit focus.

With the Hot why we also made a commitment to introduce the series of models that align with our commitment to further increase the is our ability and to drive the legacy of Harley Davidson in our core segments.

In this context today I'm pleased to introduce our new icons collection and this year's icon model the electric light revival.

Launching April 26 icons would it be extraordinary adaptations of production motorcycles, which look to a storied past and bright future.

[noise] produced only ones each model will have a limited serialized production run of 1500 bikes and deliver on what Harley Davidson has always done so well iconic design and historic moments.

The new icons collection model will be released within each model the year with no more than two models being released in any given year.

Production will be enough to fill the allocation of approximately one could be the globally, making.

Making each icon of rare and highly coveted model of for our riders, while increasing the overall the desirability of all the brand.

Selective expansion.

When we announced the Hotwire, we also identified the focused expansion into new segments. They.

They are attractive unprofitable segments of that deliver balanced combination of volume margin and potential.

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

By narrowing our focus on those opportunities that meet these criteria, we make our intention clear.

We are in them to win supported by the right the allocation of time and energy balanced with the right investments in product brand and go to market capabilities.

This gets me to a PR and marketing launch of the Pan America adventure touring bike.

With the Pan America, we see the potential to build on our off road heritage and to innovate into the high growth and attractive margin segment of adventure touring.

We're targeting of new customer, but the new customer that wants the craftsmanship heritage and legacy of Harley Davidson and wants to be part of our community.

But in America was launched globally on February 22nd at the virtual launch.

<unk> by over 350000 participants across the world.

We caught up with the with movie start Jason the more to produce launched content the abilities, our ability and excitement for Pan America around the launch.

If you haven't already watched everything at the road the path dependent America I'd encourage you to do so.

To date, the Pan American's received widespread global media of claim with over 2 billion media impressions at the 97% positive media sentiment.

With the Pan America launched earning reports endorsement of the as I quote the most important model release of memory signaling a shift in both philosophy and demographic.

The press writing reviews that have been going on for several weeks and all around the world have also been exceptional with overwhelmingly positive feedback from around the world.

The launch delivered the full sell out of the preorder allocation, which is currently in production and on schedule to be delivered to our dealers around the world from a onwards.

Adventure touring is the largest segment in many European markets and is a largely untapped market in North America.

We believe despite places us in a position to take market share in Europe and become market leader in the segment in North America.

There's also plenty of affinity for the bike and other high potential global markets with the Pan America being awarded the best Spike of 2021 at the 42nd Bank of International Motor show.

And just this morning I received the extraordinary feedback from our team in China at the Shanghai Automotive show of following the launch of our press conference of Pan America.

Looking forward with great plans to expand on Pan America, with unrivaled innovation and design of new products that will reach new audiences as we look to unlock new customers and opportunities.

Following on from the Pan America launch, we continue to execute on our priority to selectively compete in attractive segments with where we can profit and win.

We're excited for the upcoming launch of our next product from the rest of Max platform, which we redefined the premium middleweight cruiser segment.

We intend to increase the profitability of our offerings overall is in the small to mid sized crews the segment and changed the competitive landscape.

Leading in the electric.

Combustion remains the core of our business. However, we see great potential for long term growth in electric vehicles.

With life why are widely regarded as the leading electric motorcycles in the world. We're excited about our future in the space.

Earlier this year, we announced our intentions to work through with the dedicated EV Division and this work is now in full swing.

This division will allow for dedicated level of strategic focus required to deliver desirable growth in the segment.

In the quarter, we hired our chief of.

To help guide this focus as we look to build on the success of LIBOR here and win in electric.

By investing in the electric technology remains selling tend to be at the forefront of innovation and development as we look to be the pioneers in E D.

We'd be telling you more about our dedicated EV plan from Q2.

Growth beyond bikes, we've always been about more than the machine and our related business is a huge opportunity for long term expansion of the brand.

Parts and accessories, and general merchandise form part of the Harley Davidson lifestyle and together with the H D. S. S playing an important role in inspiring existing and new customers to discover the adventure.

Each business plays an important role in our overall vision and mission.

We see enormous potential to grow our customer base both of the writers of non writers shaping our future success as the global lifestyle brand.

And parts and accessories with customization, that's part of our heritage we continue working towards enhancing our position as the destination for high quality parts for all of our right of both with new and used motorcycles.

As part of this new approach to all of P&A business. The Pan America reveal included both P&A and general merchandise designed specifically for Harley Davidson adventure touring motorcycles and writers.

Harley Davidson's heritage underpins, our general merchandise business. It is authentic the motorcycle the culture and puts us in a unique position to reach beyond motorcycle riders and into the sport and lifestyle space.

With prominent brand collaborations in the works for general merchandise, we see long term potential to leverage our brand value.

We'd be telling you more about this important strategic pillar for future growth in the second half of the year.

As evidenced by the strong performance this quarter. The HD vest is of strategic assets with a track record of delivering growth and profitability.

It is our goal to make H D F. As the preferred choice for all Harley Harley Davidson riders by building digital capabilities and the drive of the innovators of financial services.

H DFS is integral to of Harley Davidson success with expansion of Europe on the Horizon. We are excited about its future.

Led by H D of as earlier this month as you know we announced the HD certified the first certified pre owned holiday. The motorcycle program designed to lead our industry satisfy all of existing loyal riders, what's the reach new customers venture into Harley ownership for the first time.

HD certified at the strategic effort to strengthen our competitive position and it's part of a new approach to the used motorcycles marketplace.

Line to the strategic priorities of the hotwire targeting long term profitable growth.

The partnership with our strong through the network, we'd want to enhance the overall customer experience encouraging brand loyalty, while supporting growth in parts and accessories channel merchandise N. H D Inc. S built around the used Harley Davidson market.

To date over 350 of our U S dealers have signed up to the program representing 63% of the USD The network on the day of launch.

Each certified pre owned motorcycles will be sold with the 12 month limits at the warranty on the engine and transmission and will include a 12 month complimentary of membership and the Hawk of owners group.

In addition, the special financing rates will be available through HD vest to support the program.

We believe HD certified will drive Harley Davidson connectivity and engagement with our customers and enhance the overall customer experience, allowing more right is to have access to all of motorcycles, providing them with an added level of confidence in the purchase and an invitation into the Harley Davidson community.

Whats the summarized.

That said, we expect the unprecedented pandemic related supply chain and logistics challenges to continue and recognize the potential associated risks well into the year.

Our brand is powerful and it is one of the most recognized globally.

With 118 years of uninterrupted heritage of craftsmanship iconic design, we have unique no other brand even comes close to the holiday medicine.

We've been through significant change, but the I believe this change has set us up to be stronger than ever before.

We will not rest of until we have best in class in everything we do.

I will now take your questions.

Yeah.

Thank you.

The ask a question. Please press star one on your telephone keypad to be placed in the queue.

We ask you to limit yourself to one question. If you have any further questions. Please press star one against the reenter the queue.

The first question is from the line of great.

The jennison.

From William Blair. Your line is open.

Yeah, Hi, its Craig from Baird.

For taking my question, it's on Pan America, We certainly heard good feedback from dealers.

The desirability of that particular model, but are you satisfied with the availability of the model. We've heard a lot of frustration I think among dealers, saying that it's just an incredibly hot product that they can't get their hands on it just trying to figure out whether that's part of the plan for scarcity or whether you're struggling to get enough bikes in the <unk>.

No.

No not struggling at all quite the opposite of what we've always said that we of decoupling. The launch the the online launch from the actual delivery of our bikes. So the bikes will be delivered as of May in the U S market and as of June in the international markets and we've launched the bikes independently because.

We figured we wanted to build the excitement around the product we wanted to our cost of our dealers and in particular.

The press two tests to get the test results out there before we actually ship all of bikes, we have quite of an astonishing amount of preorders already and we are ready for launch, but as we said we wanted to decouple the actual marketing launch from the delivery of all the bikes and get everybody of 100% ready. So we're very happy with that and to the.

The the dealers and the products are shipping as of next month.

Okay. Thank you.

Your next question is from the line of Robbie Holmes from Bank of America. Your line is now open.

Oh good morning, Thanks for taking my question.

And I was hoping you could talk about dealer feedback in general.

You've got electric you've got the certified program of holding out.

You've got now you've got these icon models like can you can you maybe just.

Talk about what's been really good so far broadly from from the dealer response from maybe maybe what what has not been good so far and have you thought a lot about just how many initiatives. Your question none of the dealers at the same time, if I could create issues.

Yeah. Thanks for the question I mean.

It's a lot of change in just like we changed the company our dealers need to change with us, but I I personally have heard nothing about the positive news dealer profitability is up significantly and.

And all of the programs, whether that's the change of the model year of our certified programs of icons of and we are literally launching as we speak now.

And and Pan America, I've only heard positive feedback so.

I mean, you guys are talking to dealers over the time, so you're getting the feedback obviously, we know that we are you know we had supply chain issues in the in the first quarter. So getting the bikes out was a bit of the challenge. It was voted at the perfect storm, because we had severely stressed transportation networks.

We had high demand.

Historically bad weather.

In February of not just in Texas, but also on the East coast, where the bikes are manufactured and significant raw material and component shortages you put that together and then switching over to a new logistics all of them and trying to get the trucking companies to come on the weekends at the night certainly posed the challenges, but we've overcome those challenges.

And we are we believe we made the right decision. So overall I would say.

Very positive feedback but of course, our deliveries were challenged but if you look at the results in our market share and in our retail sell through it shows that the the measures of working.

Terrific. Thank you so much.

True.

The next question is from the lineup of Shawn Collins from Citigroup Research. Sir Your line is now open.

Yeah, Great high yolk in Jena, Ito and Shannon good morning.

Good morning.

Hey, I wanted to ask about Harley retail sales in Europe.

Obviously, you had a soft quarter down 36% the retailers of about 20, roughly 20% of Harley volumes.

I know you mentioned Covid Lockdowns model changes and transport shipping delays in Europe.

Can you provide more commentary on some of these things and kind of your of your new and updated strategy of free for Europe and also maybe just touch upon what type of.

How severe the shipping delays were in Europe, obviously, there was the Suez Canal incident, and a global supplying supply chain congestion, but any color might be helpful. Thank you.

Yeah.

So the since the Bell and I think that's right.

I'm happy to take your question I think all of the factors that you mentioned was certainly part of the situation in Europe in Q1, starting from the Covid Lockdowns, which continue as well as the shipping disruptions exactly as you mentioned the from the Suez Canal and just the availability of shipping containers globally. It is important to also note. Some of the other changes that were driven by our hardware strategy in terms of.

Our sportswear line up as long as the Euro four euro five compliance.

That made some of the the volume of availability for the first quarter to be lower than historical levels. Looking forward. We think that a part of America. As Yakov mentioned is an incredibly important launch from the European region, and it's about a third of the overall market size of what very much excited about the potential for that in 'twenty, one and beyond.

And as well all of the actions that we're taking and extending the new product kind of of that Max platform will allow us to be competitive.

The competitive anyway in the smallest of middleweight cruiser, which I think will also have a positive impacts of yacht sales.

Combination of certainly of various stress Q1.

Variety of fronts, the opportunity going forward or the economy.

Right.

Great.

Helpful. Just a quick follow up staying with Europe, Obviously, you mentioned, the EU tariffs and all of it yesterday I'm newer to the industry, but this was the surprise for me can you just walk us through some of the developments and kind of narrow channel leading up to this news yesterday. Thanks.

Yeah, I mean, I'd like to refer to our press release that we that we put out yesterday I mean, essentially the the the Brussels of at the request of the EU.

Withdrew the be all of the five feet of eyes that are that we had and that allowed us to import.

<unk> from our international manufacturing into Europe at 6%.

The terrorists and that was revoked and the and that's obviously something we will not accept.

The relocation of essentially with the would lead to an increase from the 6% to then a total of 31% and assuming the higher tariffs between the U S and Europe coming into effect in June to a total of 56%, which obviously is unacceptable and make you are uncompetitive in the NIM.

Reach of like Europe, So for more news, if you don't mind I'd like to refer to our price betterment of move to what I said earlier.

Okay, great. Thank you for the time and insight.

Your next question is from the line of Jamie Katz from Morningstar. Your line is now open.

Hey, good morning, I guess piggybacking on that question can you sort of.

Share with us what the timeline looks like for repealing. The this tariff and one of the probability is of it being sort of step back before the June start date.

Well, we are launching in a in the appeal as we speak.

And and.

From there on the it takes its course cant really disclose too much at this point you know the Lois are in charge of the process, but we will certainly communicate more as soon as we know more but we will be asking for a temporary relief, which will essentially of luck with essentially the allow us to continue to import at the at the lower import rate until.

The final ruling is being made but the we don't know until we know what's so that's that's all we can say at this point.

Okay, and I think you called out.

Stimulus stimulus as a potential helper and I'm curious if you can remind us or quantify what the magnitude of that how it might've been in prior stimulus offerings. Thanks.

Well I don't think we can allocate in the ER.

The number but obviously the stimulus that are that have been received by our customers and consumers you know I haven't had the positive effect overall in the economy. So we assume the same as the as the case for for our consumer but to quantify that is actually impossible.

Thank you.

Your next question is from the line of James Hardiman from Wedbush Securities. Your line is now open.

Hey, good morning. Thanks.

Thanks for taking my question I'm not exactly sure how to ask the inventory question, but.

Certainly every dealer that we talk to says if they had more bikes they could they could sell more bikes seem.

It seems like you guys are coming around to the idea that the maybe the the.

The 2020 drawdown was it was a bit overdone, both domestically and internationally. Some of my question is.

What do you think is the right amount of inventory for the dealer channel.

Whether it's units or or better yet sort of days on hand.

And when do you think you'll get there ultimately and obviously I get that part of the answer is complicated by seasonality in which quarter. So everyone. I answer this but it sounds like you had some commentary about Q2 in <unk>, but also how do you see where do you see yourself, finishing inventories for for the year.

Well first of all.

Obviously demand has strengthened as I said in our in my speech earlier.

Especially a pick up in an hour in the March retail numbers.

And as a result of we've modified our production strategy. We are now running at maximum available available capacity in Q2.

The early Q4, so those scripts will be happening, then and where the car in the process of working through the timing right. Now so that we can capitalize on the strong demand that we're seeing today, but obviously without compromising on the growth in 'twenty two debt.

The fed.

As I said the.

Global supply chain has been challenged I think the way we came out.

The Q1 is quite extraordinary and the and the dealers that want more you know they are getting more to an extent where the.

The way, we continue to make sure that the desirability of all the brand.

He's taken into consideration and of those dealers that can sell more of their taking preorders and they are selling those spikes as soon as debt getting them and I think you see reflected in the strong retail numbers that we don't believe we've missed missed our sales in the quarter.

Yeah.

And then maybe just a clarification.

I apologize.

But you brought it up sort of of the pickup in March retail numbers can you maybe quantify.

How retail trended within the quarter. Obviously, there was a really there was an easier comparison, obviously towards the end of March.

But it sounds like what Youre seeing is is more than that so I don't know if you want to compare it to 2019.

But maybe speak to the to the relative strength over the course of the quarter.

Yeah.

Yeah, I mean, I don't think of you can compare with 2019 because in March of 2019, we actually Oh actually in 2020, we cant compared to 2020 is as we know 2019, I can't really compare it other than the.

The demand or the the we still had the push model the way we pushed a lot of bikes into the market and the end MSRP or transaction values were well below MSRP, we're not seeing that we are seeing and transaction values near or at the M. S. I P, which is great. We've seen used bike prices up significantly.

But we saw the.

We're not giving monthly guidance by the time, we sort of a significant pick up in March in comparison to January February which you know has two effects.

No.

Better than expected weather in March in many parts of America, and and obviously our mode of yen hitting retail as well with the you know an.

And the incentives for consumers to buy because of the stimulus package that we mentioned earlier and debt. That's so the significant uptick in March and as I said we've.

Adjusted our production strategy accordingly in the hence our increased guidance for the year.

Got it thanks, Okay. Thanks, everybody.

Your next question is from the line of Joseph Spak from RBC capital markets. Your line is now open.

Thanks for taking the question Gena maybe.

Just some housekeeping you mentioned.

Some lower expense this quarter that help from some timing shift in hardware related investments how much did that help and when should we expect that.

To come back and then maybe similarly at least for the year can you quantify how much of the logistic and supply chain headwinds moving.

Sure for Opex.

As you look at it I would say roughly half of the favorability that you saw the play through in the quarter.

Is associated with eye rewire initiatives and is it will stick through the balance of the year and about half of that will be re time to subsequent quarters.

In terms of logistics, and we're not giving out you.

Additional detail I'll, Yeah, we did see increased cost we were able to offset it with other favorability within supply chain across the quarter and as we think about our guidance for the full year, we factored in kind of continued handle the headwinds on logistics are into that updated guidance.

Okay, and then you can just just to clarify.

On the Europe issue, if you're in appeal you can still import.

Current rates and then in the worst case scenario, where you lose a decision does that mean, you would look to potentially exit Europe or are there other potential paths you could take.

Well exited Europe is certainly not an option and as I mentioned, we are appealing now and we should be knowing in the in a few weeks' time, if the appeal is granted.

It is not granted obviously of the increased tariffs will come into effect right away and hence.

Why we've said if we take the worst case scenario that that's why the adjusted the guidance as Gina mentioned would essentially go back to.

The level of said, we communicated early on in the year. So I mean, we are looking at all options right now we are vigorously.

Obviously defending our position and we believe that the original ruling of the Bureau of ours is correct, we're hoping for a resolution and a way of looking you know the all our piece of routes in Belgium, and the U U and that's the primary focus right now.

Thank you.

Your next question is from the line of Garrick Johnson from BMO capital markets sort of if your line is open.

Okay. Thank you. So many I don't know where to choose how about Asia Pacific you know the dynamics there.

The impact from exiting certain markets that might not be profitable as well as of the Q J partnership what's coming through there. So what are the dynamics in Asia right now.

Yeah.

Yep.

Yeah.

Let me start with Q, Jay So are we.

Continue with our partnership.

With Q, Jay and we're not sharing specific plans about all the product launches, but the we continue to work with SKU Jay.

So that hasn't changed and we're seeing very strong demand in China I mentioned earlier, we're just at the Shanghai Auto show very strong very strong feedback of our new Pan America launch and.

And overall, we have high hopes for the Chinese market, it's a huge opportunity the.

We're tapping into an all of the efforts that we are taking out of market. So it really didn't make a difference from a profitability point of view, we're putting into the core markets in Asia, mainly China, Japan, Korea, and a few others, but.

We think theres long term significant opportunity in the region of Dell I don't know.

If you want to add anything yet.

Yeah, just to build on that I think you see some of that reflect the and the results of the quarter. Despite all of the actions taken as part of hard wire in terms of the country presence.

And pricing actions and even our product lineup.

And adding to that much of it continues to be a very challenge of supply chain. Both for not only of Europe, but also for the Asia Pacific Region. I think it was a strong quarter in terms of profitability in comparison to our 2020 with all so I think that that again adds to the credibility of the hard wire strategy as we look internationally to continue to build upon.

And the more profitable offering them and they in a store.

Story of profitable growth for the future.

And if I may add something actually related to Europe. Because the question came up you know you look at the shipments and you're saying Oh, you're down so much and with all of the reasons that the Dell has mentioned, but if you actually look at the profitability is up dramatically so or the or the.

The actions we've taken as part of the re why are working out and and as I have mentioned also exiting.

Exiting the non profitable segments of its essentially allowing us to sell higher profit segments, and it's showing up very clearly the significant increase in profitability. Despite the lower numbers, but we do believe as Europe comes out of the Lockdown, there's certainly the opportunity for more sales.

Okay. Thank you and since it seemed everyone got to throw another one in there of the $102 million credit loss benefit. It looked like there was the big surprise there right. Your guidance went from 10% to 15% to 50% to 60% up so.

How much of that is sort of a one time thing and why did that occur as the one time issue.

Yeah.

Well I don't know that I would say that it was the surprise when you think about how the the loss provision is calculated you know a large part of it is based on the macroeconomic conditions, which saw a significant improvement from when we set the reserve at the end of Q4. So when you think about what that loss reserve is doing its.

<unk> for the lifetime losses at the loan and again some of those elements.

Our are outside of our of direct control are very consistent with what you saw across banking last last week as they were reporting earnings and where we're seeing these loss reserves come back down.

So I don't know that I would classify it as a as the surprise of sorts of the I'm just given how we calculated every every quarter.

Okay Fair enough. Thank you Peter Mhm.

Yeah.

Your next question is from the line of Ryan Sundby from William Blair. Your line is now open.

Yeah, Hi.

Thanks for taking the question.

You know what kind of sound like sharing of 50 dealers or 63% of the network.

For the HVAC sort of like program.

I know, it's just starting up now, but can you talk about what kind of consumer interest in the standard products. So far and then what's the pushback or hesitancy maybe from the <unk>.

From a base that it takes up the.

Some of the program.

Yeah. Thanks, Ryan so the consumer interest I cant tell you anything about it because we're literally line launching today of the last of couple of months, we've been signing up all of the listen we're going live.

As we speak so consumer interests I wouldn't be able to go which are in the.

Certainly in the next few weeks and then report on our with our Q2 results.

If you look at the historic.

The programs that we've rolled out of dealers I would say this is on the very high and getting the such number of dealers such a high number of dealers signing up the S that early two of new programs. So we are really pleased with the 63% have not even having had any of any launching and the experience in the mall.

The itself. We believe this number will continue to grow but overall in the from a historical context, that's actually very high a sign up our dealer network.

Your next question is from the line of Joe of the Belo from Raymond James Your line is now open.

Sorry to harp on this EU tariff the question, but I just wanted to get more clarification on your recourse at this point, you're making that you filed an appeal, but my first question is who here that appeal at the same court that ruled against you or is it another court.

And beyond the other.

The legal route there is a another route which is political or negotiation between maybe the U S. T. R. In the EU is there a sense that the body administration has taken up your.

Your case here and you're talking to the the European Union or that's not on the agenda at this point.

A good question I mean as you can imagine we are pursuing all available remedies, we do not talk about individual conversations, but obviously conversations ought to be head. We are filing as we speak for extended reliance four hour of ICU ice, which if granted will allow us.

The legal certainty to continue to eat two of to import.

At the rate of 6% and that's all we can say really at this point in time, we're looking at all avenues, but I wouldn't say that.

Those be always revoke doesn't mean, we have a chance to appeal, we do have and they are there are several opportunities that we have and we will consider those.

Chances of success I cant really estimate at this point.

Okay.

Your next question is from the line of Brandon Rolle from.

Northcoast Research your line is now open.

Good morning, congratulations on the strong quarter.

My question was largely on the new dealer incentive program, you're implementing are starting in Q3 could you kind of talk about you.

You know how you are raising the bar for dealers and how it might be a little more difficult for the achieve those incentives versus what they saw in the past.

Thanks.

The muted L.

Can you hear me now yeah, but of Dallas. Thank you sorry about that okay I'm back.

Thank you for the question. So certainly that is an important component of the hardwired strategy ex Pascal.

Your line of incentive to work together to make sure that we are working towards the same goals.

Profitability and growth.

And we look forward to seeing it.

Implemented in the in the course of the year.

Your next question is from the line of David Macgregor from Longbow Research. Your line is now open.

Good morning, everyone and congratulations on the progress to date I guess just on the deal or a question of what we're there you mentioned dealer count was down about 30% year over year do you expect that to stabilize at this level are you expecting dealer count to maybe undergo some further reductions as we move forward does it.

Maybe a little about how you expect that dynamic play out in the I guess, just with respect to the <unk>. So I appreciate the explanation.

On the revision, but can you just talk about what youre seeing in terms of the average FICO scores that are getting approved and.

The credit trends just generally overall thank you.

Certainly I'm happy to take the first part of the question. So of the Q1 and to your point is the discontinuation of additional closure of its both with them the last of internationally and as of compared the number it's true the beginning of the same period in 2020.

That's down about 160 dealers.

We are building, what we think of as a high performance and very competitive network of dealers.

Our aim is to be the best in industry and that is obviously as I mentioned before really critical from what we're trying to deliver to our customers in terms of the customer experience.

We do think that there is a handful more and I think continuing to finalize the actions of onto the network structure and then.

All with the intent of the AR.

Driving and growing a strong profitable dealer network for the future.

And referring back to the previous question certainly of the new incentive structure of an important part of that as well to help drive that profitable growth.

And in terms of out of the H DFS and the FICO scores, we have seen no material change in our FICO scores as we as we've gone throughout the quarters here and in terms of like our prime versus sub Prime. We continue you know 80% of our loans are in that that prime status, So really no material change.

Your next question is from the line of the.

But the skinny and from Wolfe Research. Your line is now open.

It's actually Fred Wightman on for Greg.

You issued the midterm targets last quarter, you had mentioned that you were looking to move the company towards more of an under promise or towards more of an under promise and over deliver mindset. I mean, just given the pretty meaningful increase in the 'twenty to 'twenty one guidance here in the first quarter can you talk about how we should view those 'twenty of 25 targets from.

The last quarter.

Yes.

Well I don't know that we use exactly those words as you just said we set out realistic targets of 421 and realistic guide alright realistic guidance for 'twenty, one and realistic targets for the five year plan based on what we what we knew at the time and we're not adjusting our five year goals and remember.

When we when we set out the five year target. They were base. The base year was 2021, so as our current year of continues to strengthen that algorithm that we laid out the air grows on top of that stronger that stronger base. So the.

The guidance now for 2021 reflects our best estimate based on some strengthening in demand as our ability to navigate a navigate the supply chain and just are you know our ability to to see that that profitability start playing through.

Yeah.

Your last question is from the line of the legal finance from Morgan Stanley. Your line is now open.

Congrats on the quarter as the management team its claim made great strides in improving margin. The question is on the revenue growth. The beyond 'twenty. One is this mainly going to be a function of price increases and improvements to mix. As you mentioned in your comments or do you eventually have a plan to increase the shipments beyond sort of 2009.

<unk> levels I understand yoga and your focus on desirability of what gives you conviction that you can remove models from the lineup maintain less inventory in the dealer channels have with dealers in the network and still grow shipments is there a tradeoff between growth and margins here. Thanks.

Yeah.

Well I would say less is more in this context being more focused.

On on on the models that make the difference being selective in product launches and what we focus on them you know should should allow us to continue to grow our business. So I think the philosophy of having it of a bloated product portfolio and thinking every new model you introduced so it's more one of the strategy.

That was really unfocused AR is not the strategy that makes any sense. So I would say in this context really less is more and we would certainly look at every opportunity to improve our top line whatever that might be in debt could be selective price increases in some markets that where we see an opportunity it could be increased shipments assuming.

And the focus within the mix is towards the higher profit models. So I think all of that it's all as I said earlier built around the desirability, which is the primary driver from our strategy.

Yeah.

Especially in Burns. Please go ahead.

Alright, that's our call for today and thanks, everyone for joining us and hope you have a fantastic day.

Thank you everybody.

Okay.

And with that this concludes today's conference call. Thank you for attending you may now disconnect.

The campus we standby.

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