Q1 2022 Harley-Davidson Inc Earnings Call

Thank you for standing by and welcome to the Harley Davidson in 2022 first quarter Investor and Analyst Conference call. Please be advised that today's conference is being recorded I would now like to hand, the conference over to Shawn Collin. Thank you. Please go ahead.

Thank you. Good morning, everyone. This is Shawn Collins, the director of Investor Relations at Harley Davidson welcome.

Welcome to our Q1 2022 earnings call.

You can access the slides supporting today's call on the Internet at Investor Dot Harley Davidson Dot com.

Our comments will include forward looking statements that are subject to risks that could cause actual results to be materially different.

These 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 youll can sites and CFO Jean together. In addition, chief commercial officer, a delo Sullivan will join for the Q&A.

Okay, let's get started.

Thank you Sean and good morning, everyone. Thank you for joining us today.

Before we get into the quarter's results I wanted to take a moment to recognize the devastating war that continues to unfold in Ukraine.

Our March 1st following the invasion of Ukraine, Harley Davidson announced that we were suspending our business in Russia.

This remains unchanged.

I'll, let David salary response to the humanitarian crisis has been driven by the core element of our mission as a brand freedom.

Whether through the philanthropic donations, we've made two organizations like United way or through the efforts of our employees and the wider community donating time money and resources to provide aid to those who need.

It is that spirit of freedom underpinned by community that has driven our efforts.

The key initiative pioneered by the company has been a fundraising T shirt designed by all I am pleased we've partnered with two charities delivering aid to those in need United way, an open mind and we are committed to support these organizations and their incredible work as long as needed.

With that I'll move on to our results from the quarter.

We started the fiscal year with good momentum across the business underpinned by strong global consumer demand for our products.

First quarter consolidated revenue was up 5% to $1 $4 $95 billion driven.

Driven primarily by <unk> revenue growth.

And while we're pleased with our start to 2022 and anticipate the momentum to improve during the year. It is important to acknowledge the significant supply challenges that we had to work through in Q1 and that we expect to continue to impact the industry.

We are cautiously optimistic on improvements to the supply chain environment in the second half of the year. However, this remains difficult to predict with certainty.

That said the brand is getting stronger and more desirable as we continue our delivery and our hardware milestones as part of the huge transformational journey of the company is on.

At the last quarter, we provided a comprehensive recap of our delivery against both the rewire and the hotwire, including the important realignment of our organization, creating a culture of performance efficiency focus and speed.

In unlocking this potential we set the company's foundation for long term success.

In May we will be presenting a comprehensive update to our hotwire strategy. So today I will only briefly address some highlights from the quarter.

Line towards strategic pillars, and our delivery against them.

Profit focus as you know we are committed to strengthening and growing our position in our strongest motorcycle segments and touring large cruiser and try it.

Not only are these segments, the most profitable and the market globally, but we also believe these segments of our untapped potential to inspire more engagement, while at compelling new customers and drive them to choose holiday Vincent.

With the hot while we've made a commitment to introduce a series of motorcycles that align with our strategy to increase these our ability and to drive and build on the incredible legacy of Harley Davidson.

In this context in January at our further foster model year launch we added extra performance in factory custom style to our 22 motorcycle line up with the reveal of eight new models each powered with the Milwaukee eight 107, the most powerful factory installed engine ever offered by Harley Davidson for those riders, who are nothing but the biggest and the best.

Building on our position as the most desirable motorcycle brand in the world.

New models included the Streetlight SD The road glide is T. In the Grand American touring line, the more powerful low rider S and the new low rider S cruiser models and for Super premium models from Harley Davidson custom vehicle operations CDO.

Since launch the response to this performance driven lineup has been very strong and as the market leader, we look forward to building on our performance driven legacy in these segments.

We believe the demand that we are seeing is a good indicator of the desirability that we've been able to build for our brand and product.

Leading electric <unk>.

Electric motorcycles are important to Harley davidson's future and were committed to staying at the forefront of electric motorcycle technology.

Live wire continues on its mission to be the most desirable electric motorcycle company and brand in the world.

Building on our announcement from last year, the Lifeway transaction remains on track as we work towards the listing in Q2.

We recently opened the first life why experience center in Malibu with one of our first in person events since the pandemic began.

The consumer awareness to the brand is building and the interest in <unk> continues to grow.

Growth beyond bikes.

Davidson financial services, HD, one marketplace parts and accessories and apparel and licensing are important drivers of the company's future success as a global sports and lifestyle brand, providing untapped potential to grow our customer base.

HD vest is an important asset to Harley Davidson from both a brand and revenue point of view.

And as we look ahead, we look forward to widening our HD vest offering to new markets.

This quarter, we've seen retail credit losses begin to normalize resulting in a higher provision for credit losses, partially offset by lower interest expense.

This quarter saw particularly strong performance from parts and accessories, especially in North America.

With personalization at the heart of motor culture, and the Harley Davidson brand, we believe parts and accessories as a long term growth area for the business and that there is strong potential to continue the growth trajectory is more riders look to make Harley Davidson uniquely theirs.

This quarter is the first time, we're reporting apparel and licensing as a separate business unit.

The quarter saw modest growth in the apparel against the challenging supply backdrop and strong growth in our licensing business.

Looking ahead, we are excited at the potential to grow both apparel and licensing leveraging the power of the Harley Davidson brand across the globe.

And lastly, this quarter saw the publication of our annual inclusive stakeholder management report highlighting some of the key achievements by the company through inclusive stakeholder management in the context of people planet and profit.

We continue to redefine and evolve our brand and company with inclusive stakeholder management is one of our six strategic priorities.

The report highlights include prioritizing people through the implementation of the Hotwire Grant.

Preserving our planet through our commitment to reduce carbon emissions and creating a path to achieving net zero carbon emissions for Harley Davidson by 2050 and for live wire by 2035.

And promoting social profit through the Harley Davidson foundations investment into our whole neighborhood in Milwaukee, making it not only a great place to work, but a great place to live and visit.

We have much to be proud of and much to look forward to in the years ahead.

And before I hand over to Gina I want to reiterate that we are looking forward to welcoming many of you to Milwaukee on the 10th of May for holidays, and our inaugural Lifeway Investor sessions.

But now I'll hand over to Gina to run through the numbers.

Thank you, Okay first quarter results reflect year over year revenue growth. The operating profit decline as we continue to operate in a volatile and inflationary supply chain environment, and we began lapping last year's record performance within each DFS as a result of the lower loss rates and reserve allowance release.

We continue to deal with the constraints, resulting from the global semiconductor shortage higher raw material prices and broad supplier volatility with cost inflation at levels consistent with what we experienced in the back half of 2021.

Looking more closely at our financial results in the quarter total consolidated revenue of $1 5 billion was 5% ahead of last year.

This increase was largely driven by revenue growth of 6% with an H D&C. Despite.

Despite wholesale motorcycle units being flat year over year revenue growth was attributed to strong global pricing and 11% growth across our parts and accessories business and 2% growth in the apparel business.

Within the financial services segment revenue was up 1% due to higher retail lending.

Total operating income of $289 million was down 16% compared to last year in line with our expectations for.

<unk> operating income was $203 million down 11% versus last year.

Decline is attributed to cost inflation and production limitations, preventing us from achieving an optimal mix.

At <unk> operating income was $86 million down 27% versus prior year as the loss performance continues to normalize in line with expectations.

First quarter GAAP earnings per share of $1 45 compares to $1 68 last year with the decline driven by the factors already noted.

Global retail sales of new motorcycles were up 2% in the quarter with significant growth in our international markets offsetting a decline in North America.

North America Q1, retail sales were down 5% versus last year as production challenges resulted in lower dealer inventory we can.

Continue to build out our reservation system with the new model year launch with 92% of the U S dealer network participating in the program, which is up from 78% in 2021.

Patients had increased 48% in 2022 compared to a total 2021 reservation.

New model introductions continue to show high demand and our leading reservation request, including low rider S T Pan American special and sports Bras.

In markets outside of North America, Q1, retail sales were up 21% versus last year, driven by growth in EMEA, which was up 28% and Asia Pacific, which was up 16%.

And APAC retail sales are positively impacted by greater product availability and moving past the majority of the unit decline associated with the market exits and that'll pruning actions taken as part of the rewire.

Worldwide retail inventory at new motorcycles was down 24% versus last year and roughly flat to the previous quarter given the challenges with production. There was limited pipeline fell on average a bike is sitting on the showroom floor in the U S for less than two weeks, which is an extraordinary reduction from Q1 2019.

This is more like 10 weeks.

Overall, we continue to see strong pricing dynamics for both new and used motorcycles in Q1 as we did throughout 2021 with transaction prices staying within two points of MSRP.

The used market also held steady with prices continuing to trend significantly above historical levels and with a narrow gap to the new motorcycle pricing.

Looking at revenue total <unk> revenue was up 6% versus last year.

Focusing on the key drivers in the quarter two points of growth came from volume, which is a combination of flat motorcycle units and growth in the parts and accessories in the apparel business.

Seven points of growth from pricing and incentives driven by global MSRP price increases coupled with pricing surcharges in select markets.

Two points of negative impact from unfavorable mix due to supply limitations, which predominantly impacted our north American touring business and finally, one point of negative impact from foreign exchange.

Focusing in on margins Q1 gross margin of 31, 3% was down 280 basis points versus last year.

The margin benefit from pricing was offset by the negative cost inflation across the supply chain and an unfavorable impact from motorcycle mix recall then in 2021 inflation really started accelerating in Q2 and continued ramping as we move throughout the year.

Cost inflation, we saw come through in Q1 is consistent with the levels seen in the back half of last year.

Q1 operating margin finished at 15, 6% compared to 18, 5% last year. Besides the drivers already noted we had higher operating expenses in the quarter, primarily driven by LIBOR.

The financial services segment operating income in Q1 was $86 million.

Down $32 million compared to last year and slightly better than internal expectations. The.

The decline versus last year is largely driven by the unfavorable year over year comparison in 2021, where we experienced both low loss rates and a significant release the loss allowance.

Setting aside the tough comp to 2021 and looking at the HTS based business retail originations in Q1 were up 13% versus last year behind strong new and used motorcycle origination volume.

Pending finance receivables in Q1 were $6 8 billion.

Which is up 1% from last year.

H DFS is retail credit loss ratio of one 8% a 60 basis point increase versus 2021 as credit performance continues to revert back to historical norms and we move pass the benefits provided to individuals' under the federal stimulus packages last year. This increase in Q1 is in line with expectations.

In addition, the retail allowance for credit losses at the end of Q1 was 5% which was unchanged from Q4.

Wrapping up with Harley Davidson, Inc. Financial results, we delivered $139 million of operating cash flow down from $163 million in Q1 2021. The decrease in operating cash flow was driven by a change in working capital.

Total cash and cash equivalents ended at $1 4 billion, which is down $927 million compared to the end of the prior year coupon.

And during the quarter, we restarted share repurchases and bought back approximately $6 2 million shares.

As we look to the rest of 2022, we reaffirm our full year outlook, where we continue to expect <unk> revenue growth of 5% to 10% this revenue.

Growth forecast incorporates what we know today in terms of the impact of the semiconductor supplier challenges impacting our business.

We expect revenue to continue to be positively impacted by our global pricing actions as we work to offset the cost headwinds across the supply chain.

Furthermore, we expect annual growth for the parts and accessories and apparel and licensing businesses.

We continue to expect <unk> operating income margin of 11% to 12%. We believe the anticipated positive impact from volume leverage unit mix and pricing combined with growth across our margin accretive businesses of P&A and apparel were more than offset the expected cost inflation across supply chain.

Also the suspension of the additional EU tariffs realized in 2021 contributes over a point of margin growth.

We continue to expect Hff's operating income to decline by 20% to 25%. This decline is largely a result of the favorable allowance releases and lower credit losses. In 2021. We believe this capability is not likely to repeat itself in 2022.

And lastly, we continue to expect capital investments of $190 million to $220 million as we invest behind product development and capability enhancement and supportive of hardware strategy.

Embedded within our guidance for 2022 as LIBOR at this time, we remain committed to the outlook issued as part of our December 13th announcement and.

And finally, as we look to the 2022 capital allocation our priorities remain to fund growth of the hardware initiative, which includes the capital expenditures previously mentioned pay dividends and we plan to continue to execute discretionary share repurchases. We have 12 million shares remaining at the end of Q1, and our board approved share repurchase plan.

This financial guidance is reflective of the supply chain outlook that we have at this time. This updated forecast assumes that logistics and manufacturing will improve as we move through the back half of the year as we get beyond the peak levels of inflation experienced in 2021 and the semiconductor supply stabilizes.

Given the macro global factors influencing raw materials, we now believe that raw materials and supply component inflation will continue for the balance of 2022 at inflation rates similar to Q1.

As we think about phasing for the year, we believe our back half revenue growth is going to be stronger than our first half.

Finally, due to the timing of anticipated supply chain stabilization, we expect our operating income margin to be in the mid teens in the front half and to be in that mid to high single digits in the back half.

At this point I'll turn it back to the operator to take your questions.

Thank you as a reminder to ask a question. Please press star one on your telephone keypad.

Withdraw your question press the pound key we also asked to limit yourself to one question and return to the queue for additional questions.

Your first question comes from the line of Ravi <unk> from Bank of America. Your line is now open.

Good morning.

And thanks for taking my question.

It's actually too.

First one is just.

Gena could you give us some color on the.

How the shipments trended through the first quarter, which was there a shortfall in March on the U S side and maybe some thought on.

You've given a little color on supply chain, but I.

Think Polaris kind of said that they might be seeing some green shoots in supply chain.

Is there any more color you can give on that and then.

In terms of the guidance for the year.

Could you give some more color on timing of gross margin offsets.

Things that can make the gross margin.

Look better in the back half related to term changes and potential for more surcharges. Thank you.

Good morning, Ravi Thanks for the questions <unk>.

Let's start with shipments and how they've moved throughout the quarter I would say March was definitely worse than earlier in the quarter and this really had everything to do with our chip supply and how that impacted our production as we move through the balance the balance of the first quarter. So.

So we didn't see that rate of production slow.

He moves through.

In terms of supply chain and what we're seeing here in the first quarter very similar to what we saw in the back half of last year, but Q4 looks very similar to what we're seeing here in Q1 and.

And as we move through the balance of the year, what we're saying and what we're seeing is that from a supplier and a chip.

Chip availability, we do see some improvement in ships in the back half of the year, but we do expect that supplier, but volatility will remain so that is something that what we saw in Q1 is going to continue as we move through the balance of the year, where we see some green shoots for improvement are within logistics and within our manufacturing environment. So within manufacturing.

And that chip supply becomes more confident.

Able to better producing more efficiently produce and so you can see that we had that slide in the deck that shows that our manufacturing kind of inflation rate in the front half of the year is a bit worse in the back half of the year and it has everything to do with how we are able to efficiently run run our operation due to that.

Acute issue with chips logistics is the other one that we are forecasting gets better in the back half of the year and it's not as the costs are going to come down, but we're saying that costs are not going to inflate as much as we saw here in Q1 remember last year, we didn't have much inflation in Q1, we had.

All of that inflation really started picking up for logistics in Q2 and kind of kept accelerating as we move through Q3 Q4. So this quarter again reflects.

And the last the last quarter and in <unk>.

Four quarters.

Higher inflation.

And so in terms of how we're thinking about guidance because of our better visibility on chip supply and the confidence that gives us and what we're able to produce and how we see the supply chain facing that's what gives us the confidence to say we from a margin perspective, we see a step up as well.

Moving to the back half of the year and remember too we are pricing pricing that curious global pricing that carries us through the whole year plus other other actions that we're taking across cost that helped to keep our eye on overall margin.

Thank you. Our next question comes from the line of Joe also download from Raymond James Your line is now open.

Thanks, Good morning couple of quick questions I guess.

Dichotomy between retail trends in the U S and internationally in Q1.

Was that all due to the difference in brief crude compares you mentioned.

In terms of EMEA, better availability et cetera, but it just seemed like it was.

A big difference this quarter. So I'm curious what you saw from a demand standpoint internationally that maybe you didn't see in the U S.

Joe.

<unk> is equally strong throughout the region.

You need to consider that especially in the first quarter of last year in the EMEA region, we had.

Bob.

Uh huh.

That we were compensating with the first quarter of this year, but there is no demand different demand is equally strong in all regions.

Also what you need to bear in mind as maybe as an additional comment as we service this market from our Vectoring.

Picturing plant in Thailand serves the EMEA region as well.

There is also.

Okay.

By differences in timing in terms of when we were manufacturing in particular module.

Thank you. Our next question comes from the line of Craig Kennison from Baird. Your line is now open.

Hey, good morning, Thanks for taking my question. It's on the economy, obviously theres a lot of focus on your supply chain challenges and rightly so, but we do get a lot more questions on on the economy and demand trends as the fed looks to fight inflation and the potential for a recession as they tried to get ahead of it.

In your mind, what can you do to prepare for a recession and how likely is that.

Do you see your current demand trends today.

Thanks, Craig I mean demand trends.

<unk> is a strong as Gina mentioned, we have now 92% of our dealer network that are leveraging our reservation system reservations are up 48% versus last year, so quantitatively and qualitatively the feedback.

Data, we are getting from our dealers.

That confirm that demand for our product is very strong.

I also mentioned the inventory levels.

This is <unk>.

Weeks inventory levels down, 24% and that is a result of the strong demand that continues.

Yeah.

Market share in our most profitable categories is actually growing.

More riders than ever through our riding Academy and if you look at our spread between used and new bike prices.

As small as its ever been.

And as also Gina mentioned transaction prices are off MSRP. So everything we see continues to suggest.

Or is that you can't anticipate a recession right.

Yep.

Market at some point.

Goes into recession is that we have extremely low inventory levels and that will allow us.

They come into the pipeline.

Taking our wholesale negatively.

I think also from a from an HD vest.

Really starting from a very healthy position. If you look at the cost of funds there half the rate of where they were back in 2009.

It's a more competitive.

Overall I think.

Coming from.

We are obviously preparing ourselves, but we see no indication at this.

Particular for our products demand is strong and that's what we're planning for.

Thank you. Our next question comes from the line of Brett Andress from Keybanc. Your line is now open.

Brett Andress from Keybanc. Please check your mute your line is now open.

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

Good morning. This is Joe Nolan on for David Macgregor.

I was just wondering if you could talk about within the 5% to 10% motorcycle revenue growth guidance for the year could you just talk about how youre thinking about volume versus price within that guidance.

Sure. Good morning, Joseph This is gena so in that in that 5% to 10% how we've talked about it at the low end of the range of that 5% is basically all price at the high end of the range at 10% that is both a combination of volume volume and price.

Thank you. Our next question comes from the line of Jamie Katz from Morningstar. Your line is now open.

Hi, Good morning, Thank you for taking my questions.

First I am curious if you would be willing to.

Discuss what your competition of dealer inventory it looks like right now and maybe where your optimal.

Time on.

On the show floor would be it's obviously somewhere between two weeks and 10 weeks, but I am guessing we maybe orange.

At that level, yet and then as you think about.

The mix of <unk>.

<unk> for the rest of the year. If you have any insight as to how you expect that to play out that would be really helpful. From a gross margin perspective. Thank you.

Good morning, Jamie. Thank you for your question, let me tackle the first part of it first around where we think the optimal inventory level as you referenced I think we have certainly seen that we are a little bit lighter than we would like to be today in the dealer network that is certainly something we hear as Johan mentioned, both qualitatively from our dealer.

And we can also see it in just the speed of how those units are turning now we think that there are a lot of things that we're doing in the short term to help support that leaner inventory position, both domestically and internationally with our reservations and preorder systems is paramount among both measures.

But we would certainly like to see the inventory going to be a little bit more robust over time.

To your reference at the high end of that range of 10 weeks, we certainly do not envision the need to go back to that level of inventory I think both ourselves and our dealers have learned how to operate much more efficiently and to find different ways to meet customer demand for specific models, particularly those new models in a way that does not require.

To have excess of inventory on the dealer floor. So it is something that we are learning we continue to evolve the model to continue to gain further understanding of consumer behavior.

Go through the past couple of years, and we certainly will factor that in to how we think about.

Inventory levels going forward.

So the second part of your question around units again as Gino referenced in Q1, we certainly were planning for a higher level.

Demand of shipments around shipments specifically around our touring product in North America. As you. All can reference there is certain amount of this mix that is influenced by our manufacturing footprint that was differentially impacted throughout the quarter.

We expect to see some recovery in that towards the back half of the year.

Certainly would say and we hear this again quantitatively you can see it in the data and qualitatively from our dealers that there is strong demand in North America for some of those core products that represent.

One of our most profitable assemblies in product lines that we intend intend to meet throughout the year.

Say that there is there is certainly opportunity for mix.

And how those core segments will represent throughout the rest of the year.

Thank you. Our next question comes from the line of brand dress from Keybanc. Your line is now open.

Hey, good morning, sorry about that.

Earlier.

Gena you helped us with the phasing of the motor co is there any way you can help us with.

H GFS phasing for the rest of the year and maybe how some of these seasonal provisions like might play into that.

Yeah. Good question I would say, it's going to be relatively constant with what you saw that play through here in Q1, there is not any any big big spikes up or down and then we had the.

When you think about the reserve release and what happened last year it was a pretty steady.

Steady decline as we move quarter by quarter.

When you look at where our reserve rate is in Q1 relatively unchanged from what we saw in Q4. So we're not at this point expecting any big swings up or down in that reserve rate as we move through the balance of the year and that was what was really creating I would say that the lumpiness in last year's results.

Yes.

Thank you. Our next question comes from the line of Gerrick Johnson from BMO capital markets. Your line is now open.

Great. Thank you good morning.

Hoping you could talk a little bit.

More about pricing.

Particularly surcharges.

I think.

Internationally, maybe you did not have some surcharges last year and if you're implementing those international markets. This year and then also.

The contribution from the reduction in dealer margin.

And how you came to that decision to go forward with a lower margin for dealers. Thank you.

Good morning. Thank you for your question. So as you referenced we have taken several pricing actions.

Starting last year and into the first part of this year on an ongoing basis across all regions and all family line, So both motorcycles as well as parts and accessories and apparel and licensing.

Those actions have largely offset the cost inflation that we're seeing this year. However, we continue to monitor that very closely to ensure that we are.

Eric preserving our margin as much as possible through pricing actions. We also of course are monitoring price realization and understanding of where some of those metrics maybe landing both domestically and internationally as you say, we have used a mixture of MSRP as well as surcharges. We believe that this provides us flexibility.

We'll see that play out differently in different markets.

Certainly the combination of those two factors is something that we think provides again that flexibility to monitor the situation as we go throughout the year.

To your second question around the.

The dealer.

I wouldn't like to comment on the specifics of the economic terms between ourselves and our key partners that our dealers.

In North America, I will say that for us a strong and healthy dealer network is an incredibly important part of the hardware strategy.

What we intend to do over the next few years dealer profitability is at near record levels, which to us is.

Great to see.

We intend to continue to partner with our dealers to continue to evolve the model of how we work together to best serve our customers over the course of hardware and beyond.

Thank you. Our next question comes from the line of behind some debate from William Blair. Your line is now open.

Yes, hi, good morning, Thanks for the question.

Hi, Gena, thanks for the color there on what the production schedule look like as we move through the quarter.

Could you flip that around maybe you can talk about what the demand trends have looked like during the quarter I guess, particularly as we've seen gas prices move higher here in last couple of months.

Sorry, Brian what was the last part of your question you kind of faded out here.

Sorry man trends.

Just with gasoline gas prices moving up here for the consumer is that starting to impact demand at all.

In short no we have not seen any of that kind of the current acute issues on inflation.

That are hitting consumers impacting our demand no we're not seeing that.

The biggest thing that impacted our shipments in Q1 was our ability to produce to the demand. So it wasn't it wasn't just a slowdown in any sense of the imagination and the Dow can you provide some more color commentary and how much from a dealer lens, but it was all everything that you see in Q1 was our ability.

To produce.

Yeah, So maybe let me add to that and reiterate some of the points you made earlier I mean every dimension that we look at in terms of the data preorders.

Price realization the growth in demand in some of those key categories.

Turing trike large cruiser as well as the relative speed of the inventory turning sort of unprecedented rates more or less two weeks and that includes sort of shipments all of those are signed to be positive. Some of the other metrics that we look at the monitor demand the youth price gap versus new as well as even home.

Our students are coming through are riding Academy are also very positive and then to the third factor that Gino referenced the qualitative feedback that we get from our dealers I think the consistent message both in the U S and Canada and other international markets is really around if we had more bikes you could sell them. So I think that all of those facts.

<unk> contribute to giving us confidence in what we're seeing in terms of demand.

Thank you. Our next question comes from the line of Fred Wightman from Wolfe Research. Your line is now open.

Hey, guys. Good morning. Thanks for the question I just wanted to follow up on the comment about just that gap between new and used pricing. It's not something that you guys have been working on for a really long time, but as we think about whether it's later this year or into next year, how do you see that gap.

Lending should we expect it to expand a little bit could there be a little bit more seasonality.

I would not expect Rod. This is Gino I would not expect that gap to widen to dramatically as we move through the next kind of balance of this year and next fiscal just given what is happening on the supply side.

We've had in 2021 and then 2022 just from what we've been able to produce a new is going to create good economics in the used market.

Thank you at this time I am showing no further questions I would like to turn the call back over to Shawn Collins for closing remarks.

Great well, thanks, everyone for joining today's call and we hope you have a great day, and obviously check in with us with any questions. Thanks.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

Yes.

Yes.

Okay.

Yes.

Yes.

[music].

Okay.

Sure.

Yes.

Sure.

Okay.

Yes.

Uh huh.

Yes.

[music].

[music].

[music].