Q3 2022 Harley-Davidson Inc Earnings Call
Davidson.
Additionally, shipments for the quarter were up 19% as we largely recovered from the unplanned production suspension and experienced earlier in the summer.
We believe that the success of our hardware strategy with a focus on our core segments is evidenced by the per unit profitability that Gina will talk about later.
To deliver this we believe that as the most desirable motorcycle company and brand in the world we needed to be shifting the traditional sold industry focus away from units to desirable unprofitable revenue when compared to the past.
We are particularly pleased with the profitability, we were able to deliver in the quarter aligned to the hotwire strategic focus.
It's important to note that when looking at the results of the quarter. We believe that the demand we saw as the quarter unfolded displayed ongoing strength and importantly that our retailers were impacted most by supply.
As we were able to have inventory, Florida more normally through the dealer channel. We saw overall retail begin to turn positive year on year for North America and other key geographies.
Aligned to profit focus on our core segments and expanding from a successful product launch. This spring in August at the start just motorcycle rally we introduced a new offering of apex factory custom paint across select 22 Grand American touring models.
Inspired by the century old rating legacy Harley Davidson and paying tribute to the legendary Harley Davidson XR 750 motorcycle apex pain, the supplied with exceptional scaled by our in house teams at European Tomahawk, demonstrating the talent of our specialists here in the U S.
We've seen a strong riding community response to these spikes and will continue to evolve our paint offerings going forward.
With the Hotwire, we made a commitment to introduce a series of motorcycles that align with our strategy to create iconic motorcycles celebrating the legacy of leadership with Harley Davidson.
The icons collection presents one or two motors annually with a single production run for each model.
Reduction of that motorcycle will never be received repeated.
Building on the success of our previous the icon the electric light Revival. This September we launched a limited edition low rider El Diablo.
In spite of an American West coast custom styling trend the low rider El Diablo combines lean performance at sport touring versatility with astounding panels and applied paint scheme.
We've seen a great response to the bike with a big coming off faster selling motorcycles in the third quarter and we're excited about the future of the iphones collection within our product lineup as we enter the on the 20th anniversary of Harley Davidson next year.
In our May analyst and Investor meeting, we set out our ambitions under the growth beyond bikes pillar with an increased focus on apparel and licensing as a new key driver of our holiday and lifestyle.
Since then we've been building, our core apparel and licensing competency, including creating a best in class in house team to be able to deliver on this ambition long term.
We saw strong growth of the AML function this quarter with 41% growth in apparel and 26% growth in licensing.
And we remain confident in the long term, we can continue to grow this part of our business further driving the desirability of our brand and motor culture lifestyle for riders and non riders alike.
Over the course of the third quarter, we continue to make rapid progress on the evolution of the customer and dealer experience and.
In the U S. We continue to expand our sole bike order process, which is call it 300% versus last year with 98% of the network now engaged.
Alongside this as we work through supply disruptions to deliveries, we added new functionality to provide better visibility and communication to dealers and customers on the status of their bikes.
As discussed earlier in the year as our Investor day.
We started to pilot a modernized distribution system with faster access to product that will support growth with a more restrained inventory model supporting profitability and improving the ability to meet customers' needs for specific buyer.
It's also set in the May Investor Day, we formally launched our facility upgrade program project fuel globally with 10% of the North American networks signed up to start in the first wave.
This is a big investment plan for global dealer base at a total value of approximately $2 billion in the U S alone, but it is a truly critical effort that is long overdue and a testament to our combined belief in the health and profitability potential for our business across both existing and new customer segments and products.
Additionally, we've launched service business consultants and the new service schedule, a need for them to drive growth of in Netflix service activity.
Importantly, our focus was not just in North America, and APAC, we expanded our customization kids program supported by new digital experience with a 30% growth in the number of kits purchase by dealers.
Finally, we continue to be enormously proud of the flexibility adaptability and partnership with our dealers as we work through a difficult year for supply and as we pilot new approaches.
The ability to stay engaged with our most loyal and new customers to support demand late in the season that strong service reach and technical expertise and the investment and experience in community demonstrate that with the strongest and most effective network in all of our sports.
As an integral part of our hotline our strategy in July we celebrated the one year anniversary of HD, one marketplace or pre owned platform today. The site hosts more than 30000 motorcycle listings, including over 2000, and Harley Davidson certified bikes, making it the leading online platform for used Harley Davidson motorcycles in the U S.
Since launch we've seen nearly 3 million visits to the site increasing the visibility into the pre owned market for both our customers and our dealers.
Two recent additions to the platform have been the inclusion of non Harley Davidson bikes widening our reach and pre qualification, making it easier for our customers to find and finance the purchase.
We will continue to invest in the site and enhance their offering ensuring that with marketplace could position Harley Davidson dotcom as the ultimate destination for customers and motorcycle fans across the globe.
As I mentioned earlier next year marks our 120th anniversary, we're going to be celebrating this landmark events like never before kicking off an annual three day rally with intention to develop it over the coming years into one of the largest holiday events and volumes in North America and globally for our riding community families and friends here an hour.
Backyard, our hometown of Milwaukee.
We know that the faster we move forward transform and innovate the more important it becomes to remember where we came from.
We want to Milwaukee, and our roots in Wisconsin, including Juno The product development Center, the powertrain operations and tomahawk to be as relevant to us today and tomorrow as it's been in our past and for our presence here to not only benefit our employees, but our community and customers alike. So stay tuned for more.
We'll be announcing more details in the new year, and our plans, including an investment that the Harley Davidson Foundation intends to make on the heels of our $10 million investment into a museum campus focusing on our funeral home in EMEA west side in Milwaukee.
Okay.
A core pillar in our hotwire strategy to lead in electric and this past September we achieved a key milestone in delivering this ambition.
On September 27th Lifewhile became the first all electric motorcycle company to list on the New York Stock Exchange.
This transaction with the listing represents a proud and exciting milestone towards our ambition for <unk> to become the most desirable electric motorcycle brand in the world.
We believe <unk> is well positioned to define the <unk> market and we are excited about the future.
We'll be telling you more about life right the fourth quarter with Ryan Morris Likewise, president joining us to present.
But now I'll hand over to Gina Gina.
Thank you Ken and good morning, everyone.
Highlighted we delivered a strong quarter, demonstrating focus and the business fundamentals.
First quarter results reflect a significant year over year revenue and operating income increased primarily driven by a strong recovery in global motorcycle production and wholesale shipments that you are being adversely impacted by the unexpected production suspension back in May.
But they continue to operate in a volatile supply chain environment, we starting to see cost inflation moderate as we move through the corner.
Specifically, we saw logistic rates decline and raw material inflation, given the moderating metal markets.
Looking more closely at our financial results in the quarter total consolidated revenue of $1 $65 billion was 21% higher than last year.
<unk> wholesale motorcycle units were up 19% year over year and revenue was up 24% with a positive spread driven by profitable unit mix and global pricing.
The financial services segment revenue was up 3% largely due to higher finance receivables.
Total operating income of $339 million up 66% compared to last year for.
<unk> operating income of $258 million was up 164% compared to last year and margins were at record levels.
Performance in the quarter was driven by the recovery in unit production and cost productivity and pricing offsetting inflation.
For Acs operating income of $81 million declined by $26 million or 24% compared to last year.
Decline was driven by a higher provision for credit losses and higher interest expense.
As we've noted in previous quarters, the credit loss rate continues to normalize in line with expectations and the loss reserve rate is remaining steady.
Third quarter GAAP earnings per share of $1 78, compared to $1 five last year with the increase driven by the factors already noted as well as from modest capability and below the line items.
Turning to Q3 and year to date results total consolidated revenue of $4 $6 billion was 7% higher compared to last year and total operating income of $906 million was 9% higher compared to last year.
GAAP Q3 year to date earnings per share of $4, 68% compares to $4 six for the same period last year.
Global retail sales of new motorcycles were down 2% in the quarter overall retail results were negatively impacted by low dealer inventory heading into Q3 and remaining lean to the first half of the quarter.
As you pointed out as the quarter went on we saw overall retail returned to growth year over year as inventory began to flow normally into the dealer channel.
Retail in the month of September was up 5% in the U S and up 7% worldwide.
Overall worldwide retail inventory of new motorcycles remains at historically low levels Q3 average inventory was 22% higher than Q3 prior year and on a sequential basis average inventory rose, 12% compared to last quarter as production in wholesale shipments recovered from the suspension of <unk> the increase in <unk>.
Mentor with welcome news for dealers, who continue to demonstrate solid retail momentum.
We continue to see strong pricing dynamics for both new and used motorcycles in Q3 as we have throughout 2022 and 2021.
Specifically within the U S Q3, new motorcycle transaction prices finished within the desirability threshold as plus or minus two percentage points.
Looking at revenue total AT&T revenue was up 24% in Q3 and up 8% on a year to date basis, focusing on the key drivers in the quarter 17 points of growth came from volume driven by the growth and recovery in units and growth in the apparel business.
Eight points of growth from pricing and lower incentives driven by global MSRP price increases coupled with pricing surcharges in select markets. In addition, we delivered strong price realization across our apparel business.
Four points of growth from favorable mix within motorcycles as well as SKU mix across the apparel business and finally four points of negative impact from foreign exchange as the dollar continued to strengthen throughout the quarter.
Drivers of year to date revenue are relatively consistent although volume growth was more muted year to date as Q3 growth was offset by the shortfall in Q2 due to the production suspension.
Focusing in on margins Q3 gross margin of 34, 1% compares to 26, 7% in the prior year.
Stronger volume favorable unit mix and pricing more than offset modestly higher cost inflation. Additionally.
Additionally, in Q3, we continued to comp the unfavorable impact from the additional unexpected EU tariffs in 2021, which provided a margin tailwind.
In total supply chain inflation was plus 2% in the quarter, which is down from 4% in Q2 and 10% in the back half of last year.
Celebration and inflation is primarily a result of normalization across logistics, including lower expedited shipping expenses and to a lesser extent raw materials and the impact of metal markets beginning the discount from peak levels last year.
Q3 operating margin improved from eight 4% in Q3 prior year to 17, 9%.
Improvement was driven by the factors noted and includes an increase in operating expense, partly driven by life layer.
As Johan mentioned since launching the hardware we have shifted from a single focus on unit growth to a more holistic view of profitable revenue growth.
Things that we took during the rewire to prune the portfolio coupled with the actions on pricing and incentives. We've taken the past couple of years to offset inflation have resulted in our unit profitability improving from the low point in 2019.
And as we continue on the hardware journey, we will remain focused on overall <unk> revenue operating income as well as profitability per unit of key measures.
The financial services segment operating income in Q3 was $81 million down $26 million compared to last year.
The decline is driven by a higher provision for credit losses, and an increase in interest expense as expected. We continue to see actual losses continued to move towards more normalized levels.
In Q3, <unk> annualized retail credit loss ratio of one 5% compares to a ratio of <unk>, 84% in Q3, 2021, or 66 basis points higher in the quarter, both the actual loss rate as well as the delinquency rates continue to be in line with expectations and historical averages.
Total retail loan origination was up three 3% in Q3 with growth across both new and used bike origination.
Total quarter, ending financing receivables were $7 3 billion, which was up 7% versus prior year.
Total Q3 interest expense is up $60 million or 36% versus prior year. The increase was driven by higher average debt outstanding and a higher average interest rates.
In addition, the retail allowance for credit losses at the end of Q3 was 5%, which was flat relative to the front half of the year.
Wrapping up with Harley Davidson, Inc. Financial results through the first three quarters, we delivered $575 million of operating cash flow, which is down from $926 million in the comparable period last year.
The decrease in operating cash flow was driven by increases in inventory as well as higher net cash outflows related to wholesale finance receivables.
Cash and cash equivalents ended at $1 7 billion.
Which is $331 million lower compared to Q3 prior year.
During Q3, we continued to repurchase shares although at a slower pace than in the first half as a cash priority shifted to fund the LIBOR transaction in Q3, we bought back approximately 400000 shares.
Notably through the third quarter, we have bought back $8 4 million shares.
As we look to the rest of 2022 as Juergen mentioned, we are reaffirming our full year outlook on <unk> revenue <unk> operating margin and Hff's operating income, where we continue to expect <unk> revenue growth of 5% to 10%.
This revenue growth forecast incorporates the expectation that we recover in wholesale the units we lost as part of the production suspension. It also includes what we know today in terms of the impact of the supplier challenges impacting our business.
We expect revenue to continue to be positively impacted by a global pricing actions as we work to offset the cost headwinds across the supply chain.
We continue to expect <unk> operating income margin of 11%, 12%. We believe the anticipated positive impact from pricing were more than offset the expected cost inflation across the supply chain.
So the suspension of the additional EU tariffs realized in 2021 contributes over a point of margin growth.
We continue to expect H DFS 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.
And lastly, we are updating our capital investment guidance from $190 million to $220 million to 170 to $199 to reflect updated project implementation timing.
Consistent with our prior quarter's disclosures embedded in our 2022 guidance of Blackwater.
Finally, as we look to capital allocation, our priorities remain to fund growth at the hardware initiatives, which include the capital expenditures previously mentioned and funding the library transaction paying dividends and executing discretionary share repurchases.
This financial guidance includes the best cost forecast on supply chain that we have at this time it assumes that logistics and materials will continue to improve between move through the balance of the year in aggregate. We expect cost will continue to be inflationary, but we will move beyond the peak levels realized in 2021.
At this point I will 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 to withdraw your question Press Star. One again, we also ask you to limit yourself to one question and then return to the queue for additional questions.
First question will come from the line of Robbie <unk> with Bank of America. Please go ahead.
Good morning, and thanks for taking my question Im can actually slip in just two real quick.
Just the first question was <unk>.
If.
Youll can you could you could talk about how demand fields.
The fourth quarter here, both on the U S and in.
Rest of world any any kind of changes.
You've seen.
And how the dealers are feeling and then for Gina I was hoping you could help us with the gross margin outlook great gross margin that you guys had how do we think a little more color on how to think about the fourth quarter and any kind of thoughts you would give us preliminary thoughts on how we think about it for next year. Thank you.
Yes, Thanks Ravi.
To your first question.
As I've mentioned.
Earlier.
We saw improvements in retail sales as the quarter window.
And therefore, we believe that the decline in retail sales was primarily due to the lack of availability of inventory at the dealer network and as we.
Got to meet a mid August things started to turn positive in retail sales have been positive <unk>. So overall at this point with more inventory available at the dealers, we feel pretty good about it.
And that is particularly the case for the U S and our Asia Pacific markets.
Okay.
Good morning, Ravi in terms of your question on margins that we had a very good margin quarter really driven by the strong recovery that we had in units in the profitable mix of those units coupled with the pricing actions that we had in market more than offsetting the cost inflation, but the quarter to really get.
And accurate view on our on our margins for the year, you're going to look at year to date, because it combines kind of that shortfall that we had in Q2 combined with with Q3, but still the story remains very positive.
Year to date, two five points of margin growth remember a point of that is coming from the tariff comp that we had from last year. Those additional EU tariff sitting in there as we think forward and think about Q4 and into 'twenty three remember keep in mind that our FX rates as we're going through the balance of the year is going to be.
Worse.
Deterioration has come into the P&L earlier in the year really not having any sort of material impact on margin as we got into Q3 and as we look to Q4 of next year that is absolutely going to have a bigger impact and as you think of Q4 as well remember that we are continuing to do the.
The changeover of our model year production at the end of October here, So from a shipment standpoint, we shipped roughly call. It 60% of an average quarter in Q4, so that that weighs on our margins as well so from a year to date standpoint, we're sitting in a really good position and feel good about the guidance that we've given knowing what we know what's coming at us for Q4.
Sure.
In terms of 2023 looking at the margin progress that we've made over the past couple of years, we're really proud of the progress.
We added a chart in this.
These materials.
<unk> to look at our profitability per bike you can really see all of the work that we're doing on cost and on pricing and on and really focusing on that mix playing through our profitability per bike.
So we foresee that really sticking with us as we move into 2023.
Just in the midst of budgeting, so we're not going to comment too terribly much on what the outlook is for next year, but keep in mind a couple of things one.
Our rule of thumb is that we're going to take enough pricing that's offsetting the cost inflation.
And then the second piece is this FX headwind that's coming at us.
It will be material for us next year, and we're just kind of shaking and figuring out how much of that pricing is going to be able to offset the FX for next year.
Very helpful. Thank you so much gena.
Youre welcome.
Your next question comes from the line of Craig Kennison with Baird. Please go ahead.
Hey, good morning, Thanks for taking my question as well I was just going to follow up on that slide nine where you talked about.
H D C profitability per bike I'm, assuming that includes.
Parts and accessory business as well.
First of all can you confirm that.
Yes, Youre, absolutely right that includes parts and accessories.
Okay. So in some ways like you've produced fewer bikes, that's a higher margin business. So maybe you can earn more per bike I'm just wondering.
Such an impressive.
Reversal in that trend, where do you think that metric ultimately can go.
When you think about that the guide that we have out there for hardware two and getting back to that mid teens margin number I mean that mid teens margin number was anchored around that 2014 2015.
Kind of profitability per unit. So I think there is still upward upward potential in the long run again I think as we think about 2023 and working through this FX impact, but we'll have to keep that in mind for next next year, but over the long run as we look at that 14 anchor that's a good one.
To kind of have out there.
Is there a way to deconstruct that to say how much money you make on a bike versus how much money you make.
Catchment right because you sold a bike and then how much is just coming in because you've got this great network of riders that by T. G&A all the time.
We can break that down.
Have broken that down we're not quite sharing that publicly yet, but we do we do understand both the profitability per bike is increasing based on the factors that we've noted.
And we're having a stronger attach rate and intend to have a stronger attach rate as we as we move forward, but we can provide some more clarity on that as we move into 2023.
Great. Thank you.
Sure.
Your next question will come from the line of Joseph <unk> with Raymond James. Please go ahead.
Thanks, Hey, guys. Good morning, I guess first a question on inventory when you have 30000 units.
The old inventory worldwide by my math its about nine weeks.
Up year over year, but youre roughly half of where you were you were call. It three years ago, and I guess, how far below optimal.
Do you think you are right now however, you wanted to find out whether it's the units are a weeks on hand for example.
Good morning. This is the Dell.
You are correct in your assessment of the inventory position I think the most important thing for us is to be able to start the riding season as we look into 2023 at a much healthier level of inventory, we know that over the past few quarters and indeed, maybe even over the past couple of years, we have not had the optimal level of inventory in any of our markets.
To really be able to capture the beginning of the season and the upside demand potential. So we're pleased to see that that situation is recovering.
As we get into the back half of 2022.
That said just as you noted we continue to understand that it is very important for us and our guiding principle of desirability to ensure a restrained and adequate level of inventory, we do not intend to go back to historical levels. The created many challenges for profitability not only for us, but also for our dealers. So that's an important part also of what Geno was just.
Sharon in the previous question.
So certainly think that we are in a much healthier position and we think this will allow us to start the riding season and are much more comfortable place both domestically and in international markets.
Still overall understanding the importance of a restrained inventory position that lives under a broader framework of desirability.
Yeah, but how would you place how you're below optimal.
Like is it 10000 bikes.
Yes that will certainly be some.
That will depend we monitored very closely as we look at the retail trends in each of the markets again, we think that the level that we're at now is healthy we think that we continue to have at this point, what we need to start the season effectively and we will continue to monitor that as we go into the new year.
Okay, but just maybe a question for casino.
We assume no changes from today could supply chain costs be a potential tailwind in 2023.
Absolutely, yes, if you see our performance through third quarter here, we started to see the supply chain can play out as we had hoped with logistics costs starting to moderate now market coming back to us that we'll continue those tailwind will continue as we move into 2023 now labor is still.
A factor that we're going to have to contend with next year from an inflation standpoint.
That is that is a piece that will continue to hit us and the overall supply base itself is still not super stable. So yeah.
There's puts and takes but largely speaking the huge inflation that we're seeing within logistics and raw materials and starting to mitigate.
Okay. Thank you.
Your next question will come from the line of James Hardiman with Citi. Please go ahead.
Hey, guys. Good morning, Thanks for taking my call. So just.
A quick clarification.
You mentioned that.
Sort of mid August .
Retail had been positive I'm, assuming that includes the month of October so maybe speak to October .
Then maybe a follow up on or off or maybe a clarification follow up on Joe's question about inventory as we exit. This year is the right way to think about next year that wholesale and retail unit should generally be alarmed or do you think there isn't there will be some incremental catch up.
To be done in 2023.
Thanks, James Yes.
Mostly I think did include October so we've seen that positive trend to continue into the fourth quarter.
To date.
Look to catch up to <unk> point depends on retail development right. So.
Certainly the big catch up was in the third quarter now with the production suspension that we had.
We had a call.
Anywhere between 10 to 12000 units of which most will now compensated.
In the third quarter, there is still a bit of catch up in the fourth quarter to do with a few thousand units.
And then it all depends on how retail is going to develop we certainly will stay very agile to make sure that supply and demand in good balance and that we're not oversupply in the market.
Difficult to project retail at this current environment, we're certainly planning for eventualities, but.
We're seeing so far and in particular in October .
A positive trend.
And just maybe one.
Clarification domestic versus international.
The inventories in the field are more balanced than they've historically been can you just speak to sort of.
Your relative comfort with domestic versus international is one.
Is there more sort of going to go on one versus the other.
Well I think overall, we feel good about the inventory on a global level.
Particular.
With regards to the U S and Asia.
EMEA markets Anybody's guess right now EMEA is going to develop but.
Overall, we feel good about the inventory levels that we have right now.
Got it thank you.
Yes.
Your next question will come from the line of Fred Wideman with Wolfe Research. Please go ahead.
Hey, guys good morning.
I wanted to take a look at the full year guidance I know, we always sort of run into this for the <unk> print, but there's a pretty wide range implied for <unk> on sales and operating profit just with the current guidance. So can you sort of talk about what.
It gets you to the high end of that range versus the low end does it really just some of the retail momentum that you just talked about is it supply chain like what are sort of the positives and negatives there.
Yes.
Sure Mike This is gene.
I would say and what gets us to the high end of the range.
Remember, we again, we're cutting off production and shipping.
Then shifting over to the next model year at the end of October So really what gets us to the high end is those bikes getting to get on the water for our international markets, having them be able to to hit an invoice in the current year. So that that really is what swing kind of from the 5% to 10% now and we feel confident about that.
Production, we feel confident about what we're going to work to wholesale we feel confident in the demand that is there is now just a matter of can we get it shipped and invoiced in those international markets in time, I think from a pricing standpoint, we're continuing to feel good about the pricing that we have in market as well on the margin standpoint, what gets us to that.
Higher end of the range is continuing to see the supply chain trends that we saw in Q3 play through in Q4.
Yeah.
Got it thank you.
Yes.
Your next question will come from the line of Gerrick Johnson with BMO capital. Please go ahead.
Yes.
Good morning. Thank you I have a couple here first you mentioned, improving availability and U S and APAC, but not EMEA, so what happened there.
Availability is fine I'm, just saying I think the economic outlook currently in EMEA is to be seen.
Very hard to judge the trends in the fourth quarter anyway, but I'd say the confidence level is certainly a lot higher in the U S and in Asia Pacific, but the inventory availability is fine.
Okay understood and PMA was down trailed everything else so why was that down.
And PNM couple of different dynamics, playing out there. The first I think the supply challenges continue for much longer in this category than in motorcycles and that certainly is continues to be an area, where there is high back orders on some of our categories that are most important to accessorizing of bike. So that's one dynamic.
Dynamic is certainly the attach rate to new motorcycles and essentially what I mean by that is the fact that the motorcycles.
We didn't have the availability in Q2 as they came in many of those bikes were spoken for and essentially are turning so quickly on the floor that the potential for pre accessories nation with a little bit muted. So that certainly has been the two driving factors behind our PMA for the quarter now if you look in terms of the overall decline in retail versus.
The decline in P&A, we still or are driving a little bit of improved growth. There are pricing is a factor of course, but we think that as supply normalizes not only in motorcycles, but also in those P&A categories themselves that we should see improvement in that growth trajectory for the business.
Okay very good thank you and one last one you reduce your capex by about 25 million Bucks.
<unk> project in Brooklyn implementation, so what was that.
Pushed out.
I wouldn't say anything necessarily got pushed out it's just the phasing of when some of the expenditures.
We're hitting in terms of.
The timing of the projects there is nothing thats been delayed or pushing that way, it's really more of an accounting thing and when costs are going to hit our expenses are going to be paid.
Okay, great. Thank you.
Your next question will come from the line of Joseph Spak with RBC capital markets. Please go ahead.
Thank you.
Maybe just on the logistics comments.
I think if I look back last quarter I think you indicated that would be flat for the second half now it was down this quarter youre seeing it down again.
In the fourth quarter, and I know, you're doing a lot less expedited and ocean is down but is this really just a comp issue from a super high level expedite because we're hearing a lot of challenges on rail for for instance, so I'd just be curious to see.
To know what Youre seeing that gives you confidence that logistics.
It can be a positive for you guys here.
Yes, Joe good question.
To your point on comp that really had much to do with Q3 in Q3 in 2021 was really high for us, particularly when everything was inflating plus we had a lot of expedited shipping when you think about the timing of our of our model year production, we typically see expedite started to rise.
Q3 of last year, as we were getting ready for the changeover.
Not seeing as much of that this year in expedited shipping. So that is what brought that that Q3 to be deflationary here are down 5% to your point on lane rates in freight rates, yes, where we're seeing the same thing labor within that within the logistics area is staying high but just the delta that we're and the stability within expedited shipping or is it.
Control I should say on expedited shipping that is what is brought Q3 down and what we foresee for Q4 as well.
Okay. That's helpful. And then second question is I know in the.
<unk>.
In the release, you mentioned on the Opex side of things.
Part of the year over year increase was was higher at <unk> is there any way you could give us the.
The total spend or the total loss for <unk>. This quarter, and then thinking about next quarter and I know as a Standalone company.
But you are still consolidating like are there.
Public company cost that we should also consider on a go forward basis that start to impact the <unk>.
Opex.
Overall consolidated enterprise.
Not not different than what we've included in our in our guidance our outlook for for Libre or for Harley what kind of what we talked about as during Investor day. All of that cost was included or the infrastructure was included the biggest thing that happened in <unk>.
People, so as we separated the business out and starting to build that talent base kind of year over year, we're spending more on that infrastructure than we would have been in the prior year, starting next quarter, but like when we release our year end and look at Q4, it will start to show.
The three segments as we've talked about we will have the motor company. Excluding E. H DFS financing arm and then we will have library as well. So we'll start to see all three of those pieces, Okay and can you give us like the total spend on <unk> this quarter on an absolute basis.
On an absolute basis, the operating expense for the quarter, we spent roughly call it $20 million. Okay. Thank you very much.
Yes.
Your next question comes from the line of Jamie Katz with Morningstar. Please go ahead.
Hi, good morning.
Be interested to hear how the appetite for financing has changed with them significantly higher APR across.
Across HD FFS.
And I do a follow up after that thanks.
In terms of Jamie Martin. This is this as you know in terms of the appetite for financing or not.
We've got to Peel it back and look at the different types of customer or consumer is still from a prime applicant. We're still seeing good appetite, we're seeing a shift of loans moving more towards prime we are seeing in the subprime tiers.
Less people raising their hands, saying they want loans and less you were becoming more stringent on the loans that were that were giving out. So we are seeing kind of that mix mix shift in two ways. One less people on the subprime side raising their hands into us funding and choosing to fund more more prime.
Okay, and then I assume that means that you are still financing roughly I don't know, 60% of the loans or whatever the prior number wise that hasn't changed I'm sorry, yes, yes. Our penetration has stayed relatively consistent this year, so right around that 65% Mark so of all loans.
Loans were 65% of them. So go back to the massive roughly 20% of folks are purchasing outright.
Cash and then of that remaining 80% we are financing 65% of them.
Perfect and I have a quick follow up on the HD, one change bringing in other brands into the fold can you talk a little bit about how that helps you control the unit pricing market across the board.
A little bit more broadly.
Well, we as I said, we wanted to.
Expand the marketplace so that it becomes.
Right.
The leading marketplace for everything at some point in terms of bikes, which is.
While we don't want to just offer HD bikes.
But give our consumers our customers and dealers an opportunity to release their own bikes and we think this is a natural expansion of HD one marketplace.
To expand on the reach.
Interest.
We are building with our customers.
Thank you.
Your next question will come from the line of Ryan Sundby with William Blair. Please go ahead.
Yeah, Hey, good morning, guys.
Really impressive growth for adventure touring this quarter can you talk a little bit more about what youre seeing there is that all demand is there anything onetime in that number around maybe market expansion.
And then with units nearly definitely in this quarter and if there are ways to help us think about it.
We're ambitious train ends up as a percentage of total units.
Thanks.
Good morning, Ryan. Thank you for your question, Yes adventure touring for US, it's an incredibly strong product when you put out in the market in a category that typically wouldn't be what people would have originally thought about Harley Davidson. So again, we're very proud of the development. It also suffered in the early parts of the year from availability of many of our other product families did and the recovery I think in Q3.
<unk> has been significant as those concerns have abated in terms of supply. This is an important segment for us. It is a global as it is.
Particularly prominent and important on a global basis, but it is also growing very strongly in North America, where we think we have the right offering the right dealer network the right support to be able to have this be another another strong contender as that market continues to grow. So our intent is to continue to support not only the adventure touring product in America in and of itself, but also the.
Some of experiences and consumers that go along with it we see great potential for growth are globally, where it has been established segment and in North America as it grows.
Okay.
Great.
Any thoughts there on kind of the percentage of total units that could ultimately represent for you guys over time.
I think that evolves as the market growth potential does we've certainly established our priority around our stronghold categories.
And that is that will continue into the future, but adventure touring again is an incredibly important segment globally and it is growing in North America. So we think the potential there is significant for it to be an important part of our overall lineup domestically and internationally.
Got it thank you.
And just to add the.
$12 50 in the U S.
That America is still the number one selling motorcycle in its segment.
Yeah.
Your next question will come from the line of Brandon <unk> with D. A Davidson. Please go ahead.
Good morning, I was going to ask could you comment on the current used versus new.
Pricing gap and how that's impacting the.
Affordability of new bikes in the out of the consumer and then maybe touch on the success or plans you have to keep new buyers engaged entered the industry during the pandemic moving forward. Thanks.
Oh.
Okay.
Sorry, Brendan I was on mute as I started speaking.
Coca Cola.
Okay, we're talking sorry.
Sorry, you probably had a gap there and we were talking about the balance of new versus used so the gap in pricing I think continues to be.
Lower rate than historically, we.
We have certainly seen the balance of new versus used within our dealer network.
<unk> throughout the year as availability has modified so we would expect that that will continue to be the dynamic going forward as availability of new changes and improves.
However, it is important to note as Johann was referencing in his previous answer around HD one that both.
These are consumers the new and the used buyer are important for our overall growth and part of the overall ecosystem of writing that we intend to establish and to continue to.
Have a be a prominent part of our story our growth story going forward.
Terms of your question, specifically around new riders that have entered the category and the sport over the past couple of years, we have spoken on this call over the past few quarters about the growth in riding Academy. We continue to see very strong adoption rates of new writers of all kinds entering the sport and for US, it's really about building that ecosystem.
Some of the experiences in that community that goes beyond some of our traditional offerings.
<unk> to really ensure that those consumers stay engaged in the way that is most relevant to them and that is both to digital touch points as well as through the incredible network of dealers and the experiences that they build all the way to the rallies and certainly in 2023, including our anniversary year events that they're very excited about so lots of.
Unity is to continue to drive that engagement that keeps those new writers writing.
Yes.
Our next question will come from the line of John Healy with Northcoast Research. Please go ahead.
Thank you for taking my question.
Picture question.
When I hear your remarks.
Thing that jumps out to me is just the commitment to.
Being controlled with your production and being rational with the amount of product that you put into the industry and if that works out profitability per unit and if you can execute on some of these operational initiatives should be.
Historically better than what we've seen in recent years could you help us walk through what would prevent you guys from pulling that playbook off.
Because when I look at that.
That opportunity is to me it seems like you control your destiny quite a bit there. So I'm just trying to kind of game theory, what's jumping out at you as being the biggest roadblocks to.
Pulling that off and then secondly, I think you maintained guidance for the HD business, despite higher rates and I was just wondering what kind of the offset was.
As you look into year end. Thank you.
Okay.
Well the biggest obstacle is always demands in this regard if you have it.
Clear.
Positioning us as the most desirable.
Lifestyle brand that is rooted in motor culture, so demand and I am talking motorcycles for a moment here.
It's what drives our thinking all the time and we want to make sure that we are.
We are planning our manufacturing accordingly in order to of course to capture demand, which was not always possible in the last couple of years due to the supply chain challenges, but also that we have a trial.
Move as demand evolves in the next quarters.
It's not just about demand management or supply management, obviously, theres a lot more happening.
HD marketplace, our digital drive and many other initiatives.
I influence room to make sure that we broaden.
<unk> broadens, our consumer base the customer base in the coming years. So there's a lot happening in this space, which is important to you we want to make sure that.
Alrighty does keep riding that we bring new riders into the sport and that we overall.
Broadening our reach in the different consumer profiles, which is also why you see an extended effort in our apparel and licensing business, which is showing nice growth, especially this quarter, that's a big initiative for us too.
<unk> broadened the consumer base, because not everybody that is a fan of Harley necessarily rights, yet may be riding in the future, but it might that might just be a customer that believes in the lifestyles laughter lifestyle loves the brands and wants to get engaged and therefore, there's a big effort there that I believe long.
Term will help us also to get people more to get into the country into riding coach and eventually.
Become a rider and take them riding academy costs, they have more opportunities on the riding Academy as well not just for new rider it could procure skills riding and other things adventure touring lots of opportunities there that we're looking at experiences slowly reshape loyalty membership.
Opportunities that we're exploring so theres a lot happening it's not just a question of.
Capturing the demand and.
And making sure that we are.
Always the most desirable and pricing is up in inventories.
It is a healthy level, there's a lot that's happening behind the scenes and in front of us needing to really get customers to engage with the brand on a very different level than we've ever seen in the past.
Okay.
And John you had a question in there on Etfs could you could you repeat the question.
Quite catch all of it.
I think you guys maintained guidance for Etfs.
Yes.
For the year, but but rates probably I would think are a headwind given your original expectations just trying to.
Understand the offsets.
Yes, good question and yes interest rates are definitely going against us and you can see that you could really start to see that play through the P&L here in Q3. When you look at that that interest expense line up pretty significantly year over year that by the way. It is going to continue to be a headwind for us as we move into Q4 and into 2023, the offset has been in the revenue so not only.
We've had overall.
Receivables go up plus all of the other revenue streams that impact <unk>.
DFS have also been positive so think of things like added insurance added credit cards all of that revenue.
And positives and helping to offset.
Great. Thank you.
There are no further questions at this time. This concludes today's call. Thank you all for joining you may now disconnect.