Q1 2023 LiveWire Group Inc. Earnings Call

Speaker 1: Strategy, I'm pleased to highlight yesterday's kickoff of a new era of CVO touring bikes the subject of huge amounts of

Gina Goetter: Markets have also continued to moderate. HDMC operating margin improved to 21.6% in Q1 from 16.9% in the prior year. The improvement was driven primarily by the factors already noted. HDFS operating income in Q1 was $58 million, down 32% compared to last year. The Q1 decline was driven by higher borrowing costs and higher credit losses. In Q1, HDFS's annualized retail credit loss ratio increased to 3.2%, which compares to an annualized loss of 1.9% in fiscal 2022. The increase in credit losses was driven by several factors relating to the current macro environment. In addition, the retail allowance for credit losses for Q1 remained steady at 5.1%. Total retail loan originations in Q1 were down 15%, while dealer inventory financing or wholesale receivables were up 88% to $1.2 billion behind stronger product availability compared to prior year.

The increase in credit losses was driven by several factors relating to the current macro environment.

In addition, the retail allowance for credit losses for the first quarter remained steady at five 1%.

Total retail loan originations in Q1 were down 15%, while dealer inventory financing or wholesale receivables were up 88% to $1 $2 billion behind stronger product availability compared to prior year.

Gina Goetter: Total quarter and net financing receivables, including both retail loans and dealer inventory financing, was $7.6 billion, which was up 11% versus prior year. Total interest expense in Q1 was up $31 million, or 75% versus prior year. The increase was driven by higher average debt outstanding and a higher cost of funding. During Q1, we raised $1.25 billion in the capital markets, and at the end of the quarter, cash and committed bank and conduit facilities resulted in a HDFS liquidity position of $2.8 billion. This, together with the subsequent Euro MTN deal that we completed in April, has put HDFS in a very strong position from both a funding and liquidity position.

Total quarter end net financing receivables, including both retail loans in dealer inventory financing was $7 6 billion, which was up 11% versus prior year.

Total interest expense in Q1 was up $31 million or 75% versus prior year. The increase was driven by higher average debt outstanding and a higher cost of funding.

During Q1, we raised $1 5 billion in the capital markets and at the end of the quarter cash and committed banking conduit facilities resulted in each DFS liquidity position of $2 $8 billion.

This together with a subsequent euro MTN deal that we completed in April has put <unk> in a very strong position from both a funding and liquidity position.

Gina Goetter: For the LiveWire segment, Q1 revenue decreased by 25%, from $10 million to $8 million, with the majority of decline driven by its channel partners for electric balance bikes taking a more conservative approach to inventory. Operating loss of $25 million was in line with expectations, with the step-up in loss versus prior year attributed to the continued investment in product development related to the company's Del Mar platform and the delivery of its second electric motorcycle. Operating losses also incorporate the added cost of standing up a new organization. Wrapping up with Harley-Davidson, Inc.'s financial results. In Q1, we delivered $47 million of operating cash flow, which was down from $139 million in the prior year. The decrease in operating cash flow was due primarily to an increase in receivable originations related to the timing and volume of wholesale shipments in Q1 2023.

For the library segment first quarter revenue decreased by 25% from 10 million to $8 million with the majority of the decline driven by its channel partners for electric balanced bikes, taking a more conservative approach to inventory.

Operating loss of $25 million was in line with expectations with the step up in loss versus prior year attributed to the continued investment in product development related to the Companys del Mar platform and the delivery of its second electric motorcycle operating losses also incorporate the added cost of standing up a new organization.

Wrapping up with Harley Davidson, Inc. Financial results in the first quarter, we delivered $47 million of operating cash flow, which was down from $139 million in the prior year.

The decrease in operating cash flow was due primarily to an increase in receivable originations related to the timing and volume of wholesale shipments in Q1 2023.

Gina Goetter: Total cash and cash equivalents ended at $1.6 billion, which is $167 million higher than at the end of Q1 prior year. This consolidated cash number includes $236 million from LiveWire. Additionally, during Q1, as part of our capital allocation strategy, we bought back 2 million shares of our stock at a value of $84 million. As we look to the rest of 2023, we are reaffirming our full-year guidance, which expects HDMC revenue growth of 4% to 7%. The growth forecast incorporates approximately 2 points of unit growth, 1 to 2 points of mix as we continue to focus on our profitable core business, and 1 to 2 points of pricing as we offset a more moderated inflationary outlook. Furthermore, we continue to expect the parts and accessories and apparel and licensing businesses to support top-line growth in line with our Hardwire strategy.

Total cash and cash equivalents ended at one $6 billion, which is $167 million higher than at the end of Q1 prior year.

This consolidated cash number includes $236 million from library.

Additionally, during the first quarter as part of our capital allocation strategy, we bought back 2 million shares of our stock at a value of $84 million.

As we look to the rest of 2023, we are reaffirming our full year guidance, which expects HTM fee revenue growth of 4% to 7%.

The growth forecast incorporates approximately two points of unit growth one to two points of mix as we continue to focus on our profitable core business and one to two points of pricing as we offset a more moderated inflationary outlook.

Furthermore, we continue to expect the parts and accessories and apparel and licensing businesses to support top line growth in line with our hardware strategy.

Gina Goetter: We continue to expect HDMC operating income margin of 14.1% to 14.6%. We believe the anticipated positive impact from pricing and the cost productivity efforts within supply chain will offset expected cost inflation and currency headwinds. We expect HDFS operating income to decline by 20% to 25%. At this time, despite the continuation of higher losses in Q1, we are holding to our original guidance. There is risk that losses could stay high throughout the year. However, we have several actions underway that should help to improve the total annualized realized losses, including increased investment behind collections and stronger repossession efforts. We believe it is prudent to get deeper into core riding season to assess the impact of loss rates for the year. There is no change to our LiveWire segment guidance.

We continue to expect <unk> operating income margin of 14, 1% to 14, 6%. We believe the anticipated positive impact from pricing and the cost productivity efforts within supply chain will offset expected cost inflation and currency headwinds.

We expect <unk> operating income to decline by 20% to 25% at this time, despite the continuation of higher losses. In Q1, we are holding to our original guidance. There is risk that losses could stay high throughout the year. However, we have several actions underway that should help to improve the total annualized realized loss.

Including increased investment behind collections and stronger repossession efforts.

We believe it is prudent to deeper into core riding season to assess the impact of loss rates for the year.

There is no change to our LIBOR segment guidance, we continue to expect unit sales between 750 in 2000 units and an operating loss range of $115 million to $125 million.

Gina Goetter: We continue to expect unit sales between 750 and 2,000 units and an operating loss range of $115 to 125 million. This forecast incorporates the updated launch timing on the new Del Mar product. Lastly, for total HDI, we continue to expect capital investments of $225 to 250 million as we continue to invest behind product development and capability enhancements. Through Q1, we have seen cost inflation generally in line with our expectations and continue to expect, in aggregate, about 2 to 3 points of inflation compared to 4% in 2022. Labor and warehousing costs continue to be the primary drivers of inflation, with deflation and moderation expected within logistics, freight, and raw materials. We've continued to see improvements in supplier performance, which is also contributing to efficiency across the supply chain. We remain on track to deliver our in-year cost productivity goal.

This forecast incorporates the updated launch timing and the new down our product.

And lastly for total HDI, we continue to expect capital investments of $225 million to $250 million as we continued to invest behind product development and capability enhancements.

Through the first quarter, we have seen cost inflation generally in line with our expectation and continue to expect in aggregate about two to three points of inflation compared to 4% in 2022.

Labor and warehousing costs continued to be the primary drivers of inflation with deflation in moderation expected within logistics freight and raw materials.

We've continued to see improvements in supplier performance, which is also contributing to efficiency across the supply chain.

And we remain on track to deliver our in year cost productivity goal.

Gina Goetter: From an annual cadence standpoint, we expect high teens revenue growth in the H1 for HDMC, as well as high teens operating margin as we lap the production shutdown from last year. We expect HDMC H2 revenue and operating income to be down year-over-year as we get back to more normalized production and seasonality compared to what we experienced in 2022. For HDFS, we expect the operating income declines to moderate in the H2 of the year as loss rates come down in line with historical seasonality patterns, and we begin to lap the interest rate increases in 2022. As we look to 2023 capital allocation, our priorities remain to fund growth of The Hardwire initiative, which includes the capital expenditures mentioned previously, paying dividends, and executing discretionary share repurchases.

From an annual cadence standpoint, we expect high teens revenue growth in the first half for H DMC as well as high teens operating margin as we lap the production shut down from last year.

We expect to HD and feedback have revenue and operating income to be down year over year, as we get back to more normalized production and seasonality compared to what we experienced in 2022.

For <unk>, we expect the operating income declines to moderate in the back half of the year as loss rates come down in line with historical seasonality pattern and we begin to lap the interest rate increases in 2022.

As we look to 2023 capital allocation, our priorities remain to fund growth of the hardware initiatives, which includes the capital expenditures mentioned previously paying dividends and executing discretionary share repurchases.

Gina Goetter: In summary, we are pleased with the resiliency of our financial results through Q1, despite a challenging retail environment. We remain focused on achieving our targets throughout this year. With that, I'll turn it back to the operator to take your questions.

In summary, we are pleased with the resiliency of our financial results for the first quarter. Despite a challenging retail environment and we remain focused on achieving our targets throughout this year.

And with that I'll turn it back to the operator to take your questions.

Operator: Thank you. As a reminder, to ask a question, please press star then the number one on your telephone keypad. To withdraw your question, please press star one again. We also ask you to limit yourself to one question and return to the queue for additional questions. Thank you. Your first question comes from the line of Robin Farley of Bank of America.

Thank you as a reminder to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question. Please press Star. One again, we also ask you to limit yourself to one question and return to the queue for additional questions.

Robin Farley: Oh, hey, good morning. Thanks for taking. I'll try and make this one question and obey the rules here. I think my question is on the sort of the shipments in Q1 and maybe help us understand for the, in North America, for the dealer network. Was there a pull forward of shipments into Q1, the 45,000 dealer unit inventory levels that you ended the quarter at, is that in the range that you want the dealers to be in? Maybe help us think about how you think riding season will play out and how we should think about dealer inventory levels as we move through this year. I think, you mentioned the customer mindset in the current macro environment maybe changing.

Robin Farley: Maybe just help us understand how we should just think about how the year, and I know everything is constantly changing, but how it looks like it could play out right now.

Gina Goetter: Robbie, you always do a fabulous job of asking three questions in one question. That is quite remarkable. I love it. I'm going to turn that over to Adele to take the first part. I'm just joking with you.

[Company Representative] (Harley-Davidson): Good morning, Robbie. Thank you for the question. With regards to where we see the inventory position as we ended Q1, we are in a much healthier position than we were last year, than we have been for a couple of years, quite frankly, as we enter the height of the riding season. We feel comfortable that we have the right levels to support the riding season in the all-critical Q2 and Q3, while remaining below what we think were damaging levels of inventory in prior years, 2019 and before that. We tracked it very closely, as you can imagine, in terms of both the families, the mix, but most importantly, the metric around MSRP realization, and as was noted in the prepared comments, this remains within the band that we consider desirable of ±2%.

[Company Representative] (Harley-Davidson): We think we are set up properly for the bulk of the season as it comes in Q2 and Q3. Now, with regards to your question on the overall sentiment of the consumer and what we're seeing in retail dynamics, it is obviously clear in an environment of rising rates and inflation that there is some moderation in customer behavior. I think we saw that also in Q1 since it was also very early in the riding season. However, overall, we continue to emphasize a message around affordability, focusing on monthly rates. We continue to drive traffic into the dealerships where we think we have the best chance of allowing our dealers to work with each individual consumer on finding the right bike for them.

[Company Representative] (Harley-Davidson): We continue to emphasize the right tools for our channel partners as well as for HDFS to allow each individual consumer to find the bike that is best suited for them. We think with all of these pieces in place, we have the right tools to support the riding season and to maintain that flat to slightly positive retail outlook for the year.

Robin Farley: Thank you.

Operator: Your next question comes from the line of Craig Kennison with Baird.

Craig Kennison: Hey, good morning. Thanks for taking my question. Gina, I got a going away gift for you, which is a math question.

Gina Goetter: Yes, Craig. Love it. Okay.

Craig Kennison: Thanks. I'm looking at your slide 17, and it's very helpful in that you assume 23,000 fewer wholesale unit shipments versus 2019. I think we can run math on that, and that would imply shipments near 190,000 bikes. You also made a comment about wholesale shipments being up year over year, which would imply more than that. I know it's not a huge gap, but I'm just trying to really fine-tune what your wholesale shipment expectation is for the year.

Gina Goetter: What we've said is that's embedded in our guidance of that revenue growth of 4% to 7% is roughly, call it one to two points of wholesale unit growth. Take where we landed there in 2022 and 1% to 2% ahead.

Craig Kennison: Just to follow up on that then, to what extent, I got to believe, retail came in a little lighter than you expected in Q1. How are you able to hang on to kind of your shipment guidance, given what looks like a softer start to the year?

Gina Goetter: I think that we feel pretty good with what we're seeing for Q2 and Q3. Remember, as we talked about our retail cadence last quarter, we said Q1 and Q4 were going to be down versus year ago, and Q2 and Q3 were going to be positive. As we look at some of the factors that are influencing our Q2 and Q3, so the rollout of our new products, the CVO that was just announced yesterday, the anniversary event that we have coming up. Plus, keep in mind that we had the production suspension last year during Q2 and Q3. We feel pretty confident that growth that we're expecting in Q2 and Q3 will come.

Craig Kennison: Great. Good luck, Gina.

Gina Goetter: Thanks.

Operator: Your next question comes from the line of Joseph Altobello with Raymond James.

Joseph Altobello: Thanks. Hey, guys. Good morning. I guess first question, just to follow up on Craig, maybe kind of give us what you're seeing so far in terms of retail in April. Obviously, you have easy compares, I guess, in May and June. I'm curious, what you're seeing so far in Q2.

Jochen Zeitz: Yeah. Thanks, Joseph. Jochen here. We've certainly seen an improvement in April, but today's call is really about Q1. Yeah, as I said, we're happy with the improvement we've seen so far, as we are now starting to really get into the riding season.

Joseph Altobello: Okay. Just to follow up on an earlier question regarding inventory. Obviously, you're in a much better position than you were, call it four years ago. I think I asked this question on the last call, but you guys expect some modest pipeline fill this year. I don't know how you define modest. Is it, call it 3,000 to 5,000 bikes that you expect to end the year higher versus 2022?

Gina Goetter: Hey, Joe, this is Gina. I'm not going to give you an exact number, but I think the sentiment is correct. As we think about coming into this year, this was the first year that we felt like we were finally getting back to healthier levels of inventory. Healthier, not the healthiest, but healthier. We feel like as we exit this year, exit 2023, we still have some room to fill a bit.

Jochen Zeitz: What we have to bear in mind if we consider the end of the year, that we are obviously prepping up for 2024. That decision we will make later in the year of how many bikes we're going to pre-produce in order to be ready with the 2024 riding season or with 2024 as a calendar year. Bear that in mind as well.

Joseph Altobello: Okay. Thank you.

Operator: Your next question comes from the line of James Hardiman with Citigroup.

James Hardiman: Hey, good morning. Maybe just a couple points of clarification around retail. Jochen, I think you said you saw an improvement in April. Is that an improvement versus substantial declines in Q3, or was April actually up? Maybe you can help us with sort of the Riding Academy channel fill that I think was in the retail number. Basically, what I'm just trying to figure out, I think you guys are still targeting retail growth for the year. I'm assuming that presumes a big growth number for Q2. Maybe just help us dimensionalize that.

Jochen Zeitz: Yeah, look, April is not even over yet. We still have a week to go. Other than what I just said, I'd rather not provide any additional color to it. As I said, certainly we've seen an improvement in April. Riding Academy are pretty small numbers, so in the overall retail figure, they don't really have a significant impact. As Gina said, if you look at the comps, if you look at the weight of the riding season in Q2 and Q3, bearing in mind that we had this production shutdown and we had limited bikes available in retail, we feel confident that the guidance of flat to slightly up is achievable. That is all based on a measured outlook on the wider economic picture, as I've highlighted earlier.

James Hardiman: To be clear, the flat to slightly up is both wholesale, which I think you said you're going to get a couple points for, but also retail ultimately.

Jochen Zeitz: Well, that comment is primarily referring to retail. Yes, if you do the math, that would indicate that applies to wholesale too.

James Hardiman: Got it. Perfect. Thank you.

Operator: Your next question comes from the line of Garrett Johnson with BMO Capital Markets.

Garrett Johnson: Hey, good morning. Jochen or Adele, can you please discuss the strategy behind the new release cadence rather than dropping all the CVOs and anniversary models at once? You released one CVO model and have a couple more coming in June. How about the rest and why the change in strategy?

[Company Representative] (Harley-Davidson): Yes, thank you very much for the question.

Jochen Zeitz: Go ahead, Adele.

[Company Representative] (Harley-Davidson): Let me just maybe characterize the Q1 component. I will turn it back over to Jochen to give you the sense for the overall strategy. We took a very deliberate decision at the start of this model year to release our anniversary bikes on a different cadence than historically in previous anniversary years. We want to maintain that level of excitement throughout the year. We think it is really important that we also have a lot of excitement around our anniversary event in Milwaukee this summer. We have staggered the launch of the products throughout the year to make sure that we have a little bit of excitement and traffic-building activities in the dealership related to that anniversary delivery throughout the year. Certainly a different cadence, but we think one that will support traffic and will support excitement throughout the bulk of the riding season.

[Company Representative] (Harley-Davidson): The same thing I think will go for our CVOs. It was a significant impact as we talk about retail trends in Q1. It was a significant impact as we compare to prior years. It allowed us, I think, to have an extraordinary reveal or initial reveal tease yesterday that will continue throughout the year. Maybe I'll turn it back to you, Jochen, to talk a little bit more about the CVO launch.

Jochen Zeitz: Yeah, not much to add. Thanks, Adele. We are timing our bikes based on what we feel is creating excitement throughout the year, obviously primarily targeted towards the H1 of the year. The necessity is also based on when the bikes are ready to be manufactured and fully engineered and ready to go. That obviously also plays into the launch. Overall, we think the timing is good timing for us, and we wanted to keep big excitement and grow the excitement through the riding season, which we certainly will be accomplishing based on the initial feedback we've received on the launch video of the new CVO.

Garrett Johnson: Okay. That sounds great. Thank you. There's a new motorcycle segment called lightweight. What models are in that?

Gina Goetter: In our lightweight seg-.

Jochen Zeitz: Go ahead, Adele.

[Company Representative] (Harley-Davidson): That includes our Harley-Davidson X350 and 500 launch in China, as well as in North America. It accounts for the Riding Academy bikes.

Garrett Johnson: Great. Thank you very much.

Operator: Your next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets.

Noah Zatzkin: Hi. Thanks for taking my question. Just on the credit loss rate, your 3.2% in Q1. Could you help us understand what normal seasonality looks like from a loss rate percentage? Then just how you're thinking about the guide relative to that rate as you progress through the year. How should we think about that rate as it relates to a potential need to adjust the guidance? Thank you.

[Company Representative] (Harley-Davidson): Good morning, Noah. This is David. First of all, I think it's important to understand that the realized credit losses in Q1 were about the same as they were in Q4. We had $52 million of realized credit losses in Q4, about $52.6 in Q1. It was a very similar dollar amount, but a slightly higher percentage because the receivables balance had dropped a little. The other thing that's important to understand is that the HDFS loan portfolio exhibits much greater seasonality than a typical auto loan portfolio. What we tend to see, because of the riding season, we tend to see people pay on time through the riding season, and then we start to see delinquencies peak late in the riding season into Q4 that ultimately manifest themselves in credit losses in Q1. We've certainly seen that over the past couple of quarters.

[Company Representative] (Harley-Davidson): It's also important to understand what was the driver of that increased loss. Delinquencies are not particularly elevated. They're really in the range that we've seen over the last 10 years or so. What we're starting to see, though, is that there's a subset of borrowers who are defaulting, and then when they default, there's been really a weaker repossession industry, and there was some declines in retail bike values last year as well. As you start to see losses or defaults coming through, a lot of people left the repossession industry during COVID. Because of the repossession industry being weaker, those lower residual values on bikes, that has ultimately led to a higher severity of credit loss as opposed to the losses that we've seen previously. Where we think about the rest of the year, first of all, I mentioned the seasonality.

[Company Representative] (Harley-Davidson): We would expect that loss rate to reduce through Q2 and Q3. That would lead, by definition, would lead to a lower loss rate for the year. As Gina mentioned in the prepared remarks, there's a number of things that we've been working on. We've been improving our origination strategy. We've been improving the score cutoffs and reducing loan-to-value ratios. We've improved our servicing activities, so we put accelerated calling efforts in place. We're using texting in late-stage delinquencies. Also making a lot of enhancements to our repossession strategy to improve the severity of loss. All of that combined leads us to what we think will be a lower annual rate for the year, and that's why we're indicating in our guidance that we feel confident that we can hold the guidance for the year.

We're using texting and late stage delinquencies and also making a lot of enhancements to our repossession strategy to improve the severity of loss. So all of that combined leads us to what we think will be a lower annual rate for the year.

[Company Representative] (Harley-Davidson): Gina, I don't know if you want to add something to that.

Gina Goetter: My only caveat, that when you say lower annual rate for the year, lower than the 3.2% that we posted in Q1.

Absolutely.

[Company Representative] (Harley-Davidson): Correct.

[Company Representative] (Harley-Davidson): We added a slide to the presentation, slide 12, to give everyone kind of a sense for the seasonality, the historical seasonality that David was talking about.

Noah Zatzkin: Thank you.

Thank you.

Operator: Your final question comes from the line of David MacGregor with Longbow Research.

Your final question comes from the line of David Macgregor with Longbow Research.

David MacGregor: Yes. Good morning, everyone. I guess a couple of questions. First of all, you referenced the raw material and logistics inflation is down. Can you just remind us on the extent to which that's hedged or locked in at this point versus variable? I'm just trying to get a sense of how much risk there might be over the balance of the year in those factors.

Yes, good morning, everyone.

Gina Goetter: Yeah, David, this is Gina. From a raw material standpoint, keep in mind that we don't buy a lot of raw materials themselves. We're buying the gidgets and the gadgets that come from the suppliers. I would say.

Jochen Zeitz: The components.

Gina Goetter: from a hedging standpoint, it's not a material risk or opportunity for us on the raw material line, I would say. As we look to the balance of the year and what we saw play through in Q1, we've absolutely seen the metal markets come back down. They're bobbing around a little bit, but we've taken that current forecast out for the rest of the year. We do expect to see logistics rates continue to stay low. They're much lower than where they were last year, particularly within the ocean freight. As we talked about last quarter, we're continuing to see inflation within the labor rates and the warehousing. Overall for the year, we're not seeing two terribly different inflation outlooks than what we talked about last quarter.

Material line.

I'd say as we look to the balance of the year.

What we saw play through in Q1, we've absolutely seen the metal markets come back down and there are bobbing around a little bit, but we've kind of taken the current that current forecast out for the rest of the year and we do expect to see logistics rates continue to stay to stay low and there are much lower than where they were last year, particularly.

David MacGregor: Right. Okay, thanks for that. I guess we should get a LiveWire question in here. Maybe a question for Ryan here. You mentioned that you've got sufficient cash and liquidity for 2023 business plan, but you've got a slowing macro here. We've already sort of talked about consumer sentiment. What gives you confidence that you can continue to fund development at the rate that preserves your market leadership in that product category?

You mentioned that you've got sufficient cash and liquidity for 2023 business plan, but I guess slowing.

Gives you confidence that you can continue to fund development of the REIT.

Preserves your market leadership in that product category.

Ryan Morrissey: Thanks for the question. I think a couple things. As you stated, as we look at Q1 here, in particular, I think largely in line with our expectations. As you stated, the macro environment's contributing to that. I think as we look at the long term, of course, the important part for us to stay on track is to just continue with the product development, and then continue to grow the units. Key to that, of course, is the product development on the Del Mar side, which we just released this past week. We're quite pleased with the reception to that bike. It's obviously a very important strategic pillar for us going forward. Of course, the introduction into Europe. We think with the two of those things, we continue to get greater scale, which of course improves the overall economics.

Okay.

Yeah. Thanks for the question.

I think a couple of things I mean as you stated.

In particular, I think largely in line with our expectations.

As I stated the macro environment contributing to that but I think as we look at the long term of course, the important part for us.

Stay on track as to just continue with the product development and then continue to grow unit.

Thank you to that of course is is the product development on the del Mar side, which we just released this past week.

And we're quite pleased with the reception that it's obviously a very important.

Strategic pillar for us going forward.

And then of course, the introduction into Europe .

So we think that the two of those things we continue to get greater scale, which of course improve the overall economics.

Ryan Morrissey: The combination of that obviously the starting cash position, and our burn rate at this point, we're comfortably able to continue with our plan and stay on track.

So the combination of that and then obviously the starting cash position.

And our burn rate at this point.

We're comfortably able to continue with our plan and stay on track.

David MacGregor: Are you still comfortably on track with the plan if you end up at the low end of that shipment range that you've got in the guidance?

Are you still comfortably on track with the plan. If you end up at the low end of that shipment range that you've got in the guidance.

Ryan Morrissey: Yeah. Even at the low end of that guidance, we'll be at a similar cash burn. We'll still be on track and within the parameters of the plan.

Okay.

Yes, even at the low end of that guidance.

We had a similar cash burn.

So it will still be on tracking within the parameters of the plan.

David MacGregor: Okay. Thanks very much.

Okay. Thanks very much.

Operator: Your next question comes from the line of Brandon Rolle with D.A. Davidson.

Your next question comes from the line of Brandon <unk> with D. A Davidson.

Brandon Rolle: Good morning. Thank you for squeezing me in here. Just a quick question on the new versus used pricing gap. Could you talk about what you're seeing this year in terms of that gap and how it might have changed with used values taking a pretty big drop to start this year versus prior years? Maybe also talk about just the availability of used inventory in the market right now. Thank you.

Good morning. Thank you for squeezing me in here just a quick question on the new versus used pricing could you talk about.

What youre seeing this year in terms of that gap and how it might have changed with used values, taking a pretty big drop to start this year versus prior years and then maybe also talk about just the availability of used inventory in the market right now thank you.

[Company Representative] (Harley-Davidson): Thank you for the question. Certainly we are seeing some moderation in that, as you mentioned in terms of the price gap, but certainly still above historical levels. Overall, the dynamics in the used and the new market are different in this year than in prior years, given the higher availability of new. We certainly expected some of that shift, and it is playing out as such. Obviously for us, used is a very important part of the overall ecosystem, and maintaining a healthy used market is part of how we continue to build our growth in the new market. Certainly there is a different dynamic this year than in prior years, so we remain, I think, with a healthier dynamic than we would've seen in historical terms.

Thank you for the question certainly we are seeing some moderation in that.

You mentioned in terms of the price cap, but certainly still above historical levels overall the dynamics in the used in the new market are different this year than in prior years, given the higher availability of new.

Certainly expect that some of that shift and it is playing out as such obviously for us to use as a very important part of the overall ecosystem and on maintaining a healthy used market is part of how we continue to build growth in the new markets, but certainly there is a different dynamic this year than in prior years, though we remain I think with a healthier dynamic than we would've seen in historical.

<unk>.

Brandon Rolle: Okay, great. Just the availability of inventory there, are you seeing more entering the market or is it in line with prior years? Thanks.

Okay, Great and just.

The availability of inventory there are you seeing more entering the market.

Is it in line with prior years. Thanks.

[Company Representative] (Harley-Davidson): I would say it's largely as expected. Again, the dynamic of the past couple of years has been a little bit different than we would've seen historically, given some of the production interruptions of the past couple of years. Some of that is working itself out as we go through the year.

Okay, it's largely as expected again in the dynamic of the past couple of years has been a little bit different than we would've seen historically given some of the production interruptions over the past couple of years. So some of that is working itself out as we go through the year.

Gina Goetter: Bearing in mind that, especially now for Q1, much healthier new inventory available in the dealerships.

Yes.

And bearing in mind that.

If.

Especially now for the first quarter much healthier new inventory available in the dealerships.

Brandon Rolle: Great. Thank you.

Great. Thank you.

Operator: You have a follow-up question from Robert Ohmes of Bank of America.

And you have a follow up question from Robby <unk> of Bank of America.

Robert Ohmes: Oh, hi. Thanks for taking my question. I think this is for you, Gina, because this is, I guess, your last call with us with Harley, and you will be missed. I was hoping you could talk about the gross margin outlook for HDMC. The EBIT margin guide, obviously with what you put up in Q1, implies moderation. The gross margin for HDMC in Q1 was pretty incredible. Can you just help us understand how we should be thinking about gross margin trends off of that incredible Q1 gross margin you guys put up through the next three quarters within the guidance? Absolutely. Thanks for the question. Yeah, Q1 is definitely going to be the strongest margin quarter for us. We really had everything going our way in terms of strong unit delivery. The mix of those units was very favorable.

Oh, hi, Thanks for taking my question. So I think this is for you Gina because.

This is I guess your last call with us with Harley and you will be missed but.

I was hoping you could talk about the gross margin outlook for each DMC.

What what gross margin, how we should be thinking about gross margin trends off of that incredible first quarter gross margin you guys put up through the next quarter next three quarters within the guidance.

Thanks for the question.

Yes, Q1 is definitely going to be the strongest margin quarter for us, we really had everything going our way in terms of strong.

Delivery the mix of those units was very very favorable from a pricing standpoint, we still have the benefit of both model year 'twenty two pricing that went in mid year in some of our markets plus the model year 'twenty three pricing.

Gina Goetter: From a pricing standpoint, we still have the benefit of both model year 2022 pricing that went in midyear in some of our markets, plus the model year 2023 pricing. From a productivity standpoint, we're on track and that offsets the cost inflation that we were seeing. As the broader supply chain has started to stabilize out a bit, we did see expedited shipping rates come down pretty substantially in Q1. We kind of had all of the factors were really firing on all cylinders, which led to that big margin gain. As we think about then the balance of the year, overall, we still feel pretty comfortable in the guide that we've given and some of the factors that were positive, so like mix as an example, was very positive in Q1.

And then from a productivity standpoint, we're on track and that offset offset the cost inflation that we're seeing as that supply chain is the broader supply chain has started to stabilize out a bit we did see expedited shipping rates come down pretty substantially in the first quarter. So we kind of had all of the all.

The factors, we're really firing on all cylinders with that which led to that big margin gain as we think about then the balance of the year overall, we still feel pretty comfortable in the guide that we've given and some of the factors that were positive. So like mix. As an example was very positive in the first quarter that will kind of settle out as we move through the back half of the year.

Gina Goetter: That will kind of settle out as we move through H2. Still end slightly positive for the year, just not quite as positive as what we had in Q1. The same thing I'd say for pricing. Pricing in Q1 will be the biggest impact, and then we start to lap the model year 2022 pricing in Q3, Q4. Again, pricing's still positive for the year, but the impact of that kind of will lessen as we go throughout. Probably the single biggest negative besides cost inflation in H1 is going to be foreign exchange. That starts to become more neutralized as we move through the back end of the year. Some puts and takes.

Still and slightly positive for the year, just not quite as positive as what we had in the first quarter.

Same thing I would say for pricing so pricing in Q1, the biggest change will be the biggest impact and then we start to lap the model year 'twenty two pricing in Q3 Q4. So again pricing is still positive for the year, but the impact of that.

Kind of will lessen as we as we go throughout.

The negative probably the single biggest negative besides cost inflation in the front half of the year is going to be foreign exchange that starts to become more neutralized as we move through the back end of the year. So some puts and takes but if you think about the overall margin guide I would say it is weighted to the front half.

Gina Goetter: As you think about the overall margin guide, I'd say it's weighted to the front half, with a little bit of margin growth in the back half, but it will definitely be front half loaded.

Robert Ohmes: That's really helpful. Thanks so much, and best of luck with the riding season.

Okay.

That's really helpful. Thanks, so much and best of luck with the riding season.

Gina Goetter: Thank you.

Thank you.

Operator: You have a follow-up question from James Hardiman with Citigroup.

You have a follow up question from James Hardiman with Citigroup.

James Hardiman: Hey, thanks for fitting me in. Two follow-ups for me. On HDFS, that 3.2%, obviously, you're saying you think that's going to come down over the next two quarters. What does that number need to look like for the year to be consistent with how you've ultimately guided HDFS? I guess most notably that 5.1 provision rate seems to be the big driver there. Then on the retail side, I think you've made some comments that launch timing may have negatively impacted retail, so maybe even though wholesale was essentially the same and maybe a little bit more inventory build, some of that retail benefit won't be until Q2. I'm hoping you can sort of tease that out as I think about how you framed retail, right? Some timing, then there's some consumer mindset stuff.

Okay.

Hey, Thanks for fitting me in so two follow ups for me on Etfs that three 2%.

To be consistent with how you ultimately guided.

Thanks, Jeff asked I guess, most notably that $5 one.

Provision rate.

The big driver there.

And then on the retail side.

I think you've made some comments that launch timing may have negatively impacted retail and so maybe there is even though wholesale was essentially the same and maybe a little bit more inventory build.

Some of that in retail benefit won't be until the second quarter.

I'm, hoping you can sort of tease that out if I think about how you framed retail rate some timing and then there are some consumer mindset.

James Hardiman: Obviously, the latter is pretty difficult to handicap, but maybe the timing piece is maybe a little bit easier to quantify.

Obviously the ladder.

It's pretty difficult to handicap.

Maybe the timing piece is maybe a little bit easier to quantify.

Gina Goetter: Sure, James. I'll take that first part of the question, and then I'll turn it over to Adele. For HDFS, we started at 3.2%. Without giving you a precise number, what I'd say is embedded in our guidance, let's call it a mid-2s loss rate for the year. We feel that we can absorb that within the guidance levels that we've given.

Okay.

So James I'll take that first part of the question and then I'll turn it over to David for Etfs. So we started at three two.

Without giving you a precise number what I'd say is embedded in our guidance is call. It a mid mid two's loss rates.

Year.

That's what we.

We feel that we can absorb that within the guidance levels that we've that we've given.

James Hardiman: That's helpful.

[Company Representative] (Harley-Davidson): Yes, on the retail question. I wouldn't say that we have necessarily shipped significantly ahead in wholesale versus what we expect in retail. I think we certainly have a healthier inventory position, as we have discussed, as we go into this riding season. The point specifically on anniversary models, the CVOs, and even some of our new models is, contrary to previous years where we would have had potentially all of that inventory in the dealership to start the riding season, we are deliberately shipping that throughout the year. You will actually see both the wholesales and the retails as we go through Q2 and Q3 for anniversary models, for some of our new models, as well as certainly for the CVOs, which will come in the back half of the year.

Okay.

On the retail question. So I wouldn't say that we have necessarily shipped significantly ahead in wholesales versus what we expect in retails I think we certainly have a healthier inventory position as we have discussed as we go into this riding season.

Specifically on anniversary model, the Cdos and even some of our new models is contrary to previous years, where we would've had potentially all of that inventory in the dealership to start the riding season, we are deliberately shipping that throughout the year. So you will actually see both the wholesale and the retails as we go through Q2 and Q3.

Our anniversary models or some of our new models as well as certainly for the Cdos, which will come in the back half of the year. So just the overall cadence of how the product is working its way and rippling its way out through the network is very different than what we would've seen historically and then I did want to note just reiterate the point around the <unk> that youll have made earlier.

[Company Representative] (Harley-Davidson): Just the overall cadence of how the product is working its way and rippling its way out through the network is very different than what we would have seen historically. Then I did want to note, just to reiterate the point around the Sportster that Jochen made earlier. This is a product that we are sunsetting. Obviously, there are retails, but these are significantly lower as that product sunsets, and there is an expectation that our RevMax platform over time, as it evolves, will grow to match some of that volume. That dynamic certainly was a component of Q1 as well, and it will evolve over the rest of the year. I would say it's less about us pre-positioning the wholesales versus the retails, and overall, the cadence just looks very differently than we would have done it historically.

This is a product we're sunsetting, we're still obviously there are retail, but these are significantly lower as that product sunsets and there is an expectation that our <unk> platform over time.

Evolves, we'll become sort of will grow to match some of that volume, but that dynamic certainly was a component of Q1 as well and it will evolve over the rest of the year. So I would say, it's less about us pre positioning the wholesale versus the retail as an overall the cadence just look very differently than we would've done it historically.

James Hardiman: That's really good color. Thank you both, and Gina, good luck at your next stop.

That's really good color. Thank you both.

Good luck with your next part.

Gina Goetter: Thanks, James.

Okay.

Okay.

Operator: There are no further questions at this time. I would now like to turn it back over to Jochen Zeitz for some closing remarks.

There are no further questions at this time I would now like to turn it back over to kenzie for some closing remarks.

Jochen Zeitz: Well, thank you everybody for joining us today. As Robbie alluded to, Gina will be leaving us at the end of this month, and this is her last quarterly call. I'd really like to take the opportunity and thank her very much for her service to the company since she started 2020. Wish her the very best in her new role, and she will certainly be missed. Thank you all again for joining us, and have a great day.

Operator: This concludes today's conference call. You may now disconnect.