Q3 2023 Harley Davidson Inc Earnings Call

Thank you for standing by and welcome to the Harley Davidson 2023 third quarter Investor and Analyst Conference call. Please be advised that today's conference is being recorded I would now like to hand, the conference over to Shawn Collins. Thank you. Please go ahead.

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

You can access the slides supporting today's call on the Internet.

Harley Davidson Investor Relations website.

As you might expect our comments will include forward looking statements that are subject to business risks that could cause actual results to be materially different.

Those risks include among others matters, we have noted in today's earnings release, and our latest filings with the SEC.

With that joining me this morning for the first part of the call our Harley Davidson Chief Executive Officer Hilton sites.

Also chief Financial Officer, Jonathan Group.

And likewise, our CEO Corinne.

In addition for the Q&A portion of today's call Harley Davidson, Chief Commercial officer, Dell, who silica will be joining us.

So he does.

With that let me turn it over to our CEO Youll concise Jochen.

Okay.

Thank you Sean and good morning, everyone. Thank you for joining us today for Harley Davidson in life why is Q3 results.

I will start with an overview of the <unk> business for the quarter carrying will then provide commentary on lifeline and Jonathan when we run out the financials for HDI, including H D. Fas before we go into questions.

As we closed out the third quarter of 2003. It is clear that the macroeconomic backdrop has been a challenge for our customers globally and in turn for our business with both inflationary pressures trading affordability challenges and high interest rates contributing to slower upgrade pipeline.

We've continued to work through the effects of the unplanned production suspension in June and July which impacted Q3 by delaying the availability of some of our high demand products as well as altering our inventory mix, especially in North America.

Give me this complex environment, we continue to focus on the execution of our five year strategic plan.

Results for the quarter reflect the revenue decline of 9% at <unk>, partially offset by revenue growth of 15% at H DFS.

<unk> to an overall revenue decline of 6% for the quarter.

Unknown Executive: Thank you for standing by and welcome to the Harley-Davidson 2023 Third Quarter Investor in Analyst Conference Call. Please be advised that today's conference is being recorded.

This performance was driven by a 20% decline in <unk> sales due to the production suspension announced in late Q2, food and dealer inventory management and market conditions in line with our latest guidance.

Shawn Collins: I would now like to hand the conference over to Shawn Collins. Thank you. Please go ahead. Thank you.

This was partially offset by both higher.

Pricing and mix.

Q3 year to date revenue for <unk> is up two 1% despite the challenging conditions of the year.

Shawn Collins: Good morning. This is Shawn Collins, the Director of Investor Relations at Harley-Davidson. You can access the slides supporting today's call on the Internet at the Harley-Davidson Investor Relations website. As you might expect, our comments will include forward-looking statements that are subject to business risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in today's earnings release and our latest filings with the SEC. With that, the joining me this morning for the first part of the call are Harley-Davidson Chief Executive Officer, Jochen Zeitz, also Chief Financial Officer, Jonathan Root, and LiveWire CEO, Karim Donnez.

I want to provide a few more specifics behind this figure is taking into consideration both our hardware strategy as well as the realities our sector right now.

Firstly, our hardware strategy prioritizes, our stronghold categories of Turing <unk> CEO.

The premium segment has been disproportionately impacted this year as affordability and discretionary spend that become more of a concern and as macroeconomic conditions have slowed down the upgrade cycle in these categories, particularly in our long running platform like Rushmore touring.

It is important to note. However that we continue to enjoy market, leading economics and more than 70% share in these highly desirable profitable categories in North America.

We believe that customer desire for Harley Davidson touring bike the pinnacle of Motorcycling remains undiminished, despite the well entrenched narrative to the country.

And at both differentiation and a compelling value proposition can drive growth even in the challenging market.

Secondly, our retail volume in North America in particular has been adversely affected by the sunsetting of our legacy Sportster, which was a share builder in the cruiser category.

Shawn Collins: In addition to the Q&A portion of today's call, Harley-Davidson Chief Commercial Officer, Tedell O'Sullivan, will be joining us as she usually does.

Shawn Collins: With that, let me turn it over to our CEO, Jochen Zeitz. Jochen? Thank you, Shawn, and good morning, everyone.

We believe our <unk> platform introduced in 'twenty, one to be both unique and take forward.

The platform well positioned competitively has the potential for customer adoption to grow over time.

Jochen Zeitz: Thank you for joining us today for Harley-Davidson and LiveWire as Q3 Results. I will start with an overview of the HDMC business for the quarter. Karim will then provide commentary on LiveWire and Jonathan will run out the financials for HDI, including HDFS, before we go into questions. As we closed out the third quarter of 23, it is clear that the macroeconomic backdrop has been a challenge for our customers globally and in turn for our business, with both inflationary pressures creating affordability challenges and high interest rates contributing to slower upgrade pipeline.

Thirdly, we remain focused on managing inventory our dealer channel to protect this our ability and long term profitability.

Given the overall market conditions, we've exited throughout the year to manage overall inventory levels within the within the constraints of manufacturing reality.

Jochen Zeitz: We've continued to work through the effects of the unplanned production suspension in June and July, which impacted Q3 by delaying the availability of some of our high demand products, as well as altering our inventory mix, especially in North America. Given this complex environment, we continue to focus on the execution of our five-year strategic plan. Results for the quarter reflect a revenue decline of 9% at HDMC, partially offset by revenue growth of 15% at HDFS, contributing to an overall revenue decline of 6% for the quarter.

It is important to note that the production suspension late in Q2 created challenges to our timing mix and distribution of inventory in the channel, which will also work to address throughout the quarter.

It is also worth noting that as we finished 23 production at the end of last week, we believe current inventory and any remaining shipments for this year's product with support retail volume through our Q4 and early in 2004.

We also recognize that the market conditions, where demand is more uneven requires us to operate at inventory levels that are higher than what we saw in 'twenty, one and 'twenty two.

Jochen Zeitz: This performance was driven by a 20% decline in hold sales due to the production suspension announced in late Q2, food and dealer inventory management and market conditions in line with our latest gardens. This was partially offset by both higher pricing and mix. Q3-year-to-date revenue for HDMC is up 2.1%, despite the challenging conditions of the year. I want to provide a few more specifics behind these figures, taking into consideration both our hardware strategy, as well as the realities of our sector right now.

Lastly, we've increased our marketing and promotional spend to both support our loyal customers and dealers in a challenging environment and manage inventory mix against our strategic objectives, particularly with product arriving later in the year.

While this spend is higher than in both 'twenty, one and 'twenty two it's important to note that this investment is targeted limited balanced across traffic driving and support for closing deals.

We've seen this yield many learnings in better alignment with our dealer network.

Despite the many challenges of the year there are significant highlights to share.

Jochen Zeitz: Firstly, our HardWire strategy prioritizes our stronghold categories of touring, soft-tailed, trident CVO. The premium segment has been disproportionately impacted this year as a portability and discretionary spend that become more of a concern, and as macroeconomic conditions have slowed down the upgrade cycle in these categories, particularly in a long-running platform like Rushmore and Touring. It is important to note, however, that we continue to enjoy market-leading economics and more than 70% share in these highly-desirable profitable categories in North America.

Firstly, our cdos have been very well received in the market with sales in the category up 25% versus prior year and demonstrating strong sell through.

Our dealers and customers are excited by the evolution of this product demonstrated in the most exclusive category in our lineup.

Secondly, both our combined trike and soft sales are also demonstrating retail growth up 12% for the year at the end of Q3.

We're actively expanding capacity for our <unk> offering while driving more production to our hottest models with breakout in the software category being a good example of this.

Jochen Zeitz: We believe that customer desire for a Harley-Davidson touring bike, the pinnacle of motorcycling, remains undiminished despite the well-entrenched narratives to the contrary, and that both differentiation and a compelling value proposition can drive both even in the challenging market. Secondly, our retail volume in North America in particular has been adversely affected by the sun-setting of our legacy sports star, which was a share-builder and the cruiser category. We believe our redmax platform introduced in 21 to be both unique and tech-forward, and that the platform, when position-competitively, has the potential for customer adoption to grow over time.

Both of these examples demonstrate that even through difficult conditions, a compelling offer coupled with the strong value proposition can drive growth.

Through the quarter all global regions continued to show strong profitability driven by a strong focus on mixed management and growth in our most profitable categories.

This turnaround has contributed significantly to the bottom line for our business and we believe this provides a solid platform for future profitable growth.

Some of you have already noted on October 3rd and fourth we had an in person dealer for removal key for the leadership of our North American dealer network.

Jochen Zeitz: Thirdly, we remain focused on managing inventory our dealer channel to protect this our ability and long-term profitability. Given overall market conditions, we've acted throughout the year to manage overall inventory levels within this constraints of manufacturing realities. It is important to note that the production suspension late in Q2 created challenges to our timing, mix and distribution of inventory in the channel, which we also work to address throughout the quarter. This also worth noting that as we finish 23 production at the end of last week, we believe current inventory in any remaining shipments for this year's product will support retail volume throughout Q4 and early in 24.

First of its kind.

Attended by roughly 80% of our dealer body North America disappointed three objectives.

Firstly to share exciting product developments with our dealer network.

And Lee to build further alignment with our plans and investments designed to maximize impact in 2004.

And thirdly to get us all energized and prepared for what's to come in 2004.

Over the course of one five days, our agenda spend product introductions growth and profitability planning go to market alignment and updates on key initiatives like membership and loyalty.

Feedback on the event has been overwhelmingly positive with over 90% of attendees satisfied with the information shared in the meeting overall and with dealers highlighting the value of this session to ensure we are fully aligned as we entered the back comparable hotwire strategy.

Jochen Zeitz: We also recognize that the market conditions where demand as more uneven requires us to operate at inventory levels that are higher than what we saw in 21 and 22. Lastly, we've increased our marketing and promotion and spent to both support our loyal customers and dealers in a challenging environment and manage inventory mix against our strategic objectives, particularly with product arriving later in the year. While this spend is higher than in both 21 and 22, it's important to note that this investment is targeted, limited, and balanced across traffic driving and support for closing deals. We've seen this yield many learnings and better alignment with our dealer network.

As we've said before we believe our dealer network is the strongest most exclusive and most powerful deal aboard in all our power sports and remains a critical competitive advantage to drive growth.

Inventory and support our customer experience.

Before I hand, it over to Karim Harley Davidson remains committed to its hardware strategy with a focus on both profitability and desirability and we will do everything possible to achieve our goals.

That said, we are certainly realistic that current market conditions are challenging, but we will continue to focus on what we can control, including scrutinized edition of our opex and focusing on cost productivity gains.

Jochen Zeitz: Despite the many challenges of the year, there are significant highlights to share. Firstly, our CVOs have been very well received in the market, which sales in the category up 25% versus prior year, and demonstrating strong sell-through. Our dealers and customers are excited by the evolution this product demonstrated in the most exclusive category in our lineup. Secondly, both our combined trike and soft tails are also demonstrating retail growth, up 12% for the year at the end of Q3.

Thank you Ryan good morning, everyone.

Q3 for many important developments for lifeline.

As we continue to advance our product portfolio and built out our commercial footprint.

Most importantly, we started production of the del Mar at the Harley Davidson Factory In York, Pennsylvania.

This is an important milestone for Libra.

Jochen Zeitz: We're actively expanding capacity for our trike offering while driving more production to our orders models, with breakout in the software category being a good example of this. Both these examples demonstrate that even through difficult conditions a compelling offer coupled with a strong value proposition can drive growth. Through the quarter all global regions continue to show strong profitability driven by a strong focus on mixed management and growth in our most profitable categories. This turnaround has contributed significantly to the bottom line for our business and we believe this provides a solid platform for future profitable growth.

After a multi year investment in the <unk> two platform.

In house development of the LIBOR Your battery pack model, our electronics and software.

We believe these investments have given us an industry, leading technology and the capability to rapidly adapt and advance these two platform.

Good reducing LIBOR dependency on third party suppliers.

Our early customers have now started to receive their del Mar and the banks are on the road in the U S.

Jochen Zeitz: At some of you have already noted on October 3rd and 4th, we had an in-person dealer following rule walking for the leadership of our North American dealer network, the first of its kind. Attendant by roughly 80% of our dealer body in North America, this event had three objectives. Firstly, to share exciting product developments with our dealer network. Secondly, to build further alignment with our plans and investments designed to maximize impact in 24.

Those items that have experience del Mar are impressed by how the bike deliveries on the library of products with outstanding specs and more accessible price points.

Jochen Zeitz: And thirdly, together all energised and prepared for what's to come in 24. Over the course of one and a half days our agendas spend product introductions, growth and profitability planning, go to market alignment and updates on key initiatives like membership and loyalty. Feedback on the event has been overwhelming, a positive with over 90% of attendees satisfied with the information shared and the meeting overall. And with dealers highlighting the value of this session to ensure we are fully aligned as we enter the back half of our hardware strategy.

With production now ramping up.

Pat to see increasing volumes in Q4, as we get more bikes to more customers.

We recently announced European pricing for the del Mar.

Confirmed delivery dates in Q1, 2024 and opened reservations.

Two weeks ago, we hosted a media and influencers from across the European market.

Denmark press event in Barcelona.

Building early momentum for the spring riding season.

Our development teams are working hard to leverage the existing basic and libre a platform to expand the group's portfolio and bring more options to more riders.

Jochen Zeitz: As we've said before, we believe our dealer network is the strongest, most exclusive and most powerful dealer body in all of power sports and remains a critical competitive advantage to drive growth, manage inventory and support our customer experience. Before I hand it over to Karim, Harley Davidson remains committed to a hardware strategy with a focus on both profitability and desirability, and we will do everything possible to achieve our goals. That said, we're certainly realistic that current market conditions are challenging, but we'll continue to focus on what we can control, including scrutinisation of our OPEX and focusing on cost productivity gains.

As we look to the end of the fiscal year, our cash investments are in line with our plan.

We also expect to meet our most recent guidance based on demand and current daily production outputs.

Thank you and now I'll hand, it over to Jonathan.

Thank you Cory and good morning, everyone.

Third quarter of 2023 is the fourth time under our new reporting structure with the three business segments of HTM C. H DFS in LIBOR here in.

Karim Donnez: Thank you, Johan.

In Q3 global wholesale shipments decreased by 20% as the open referenced earlier due to the production suspension announced in late Q2 prudent dealer inventory management and market conditions in line with our latest guidance.

Karim Donnez: Good morning, everyone. Q3 is so many important developments for LiveWire. As we continue to advance our product portfolio and build out our commercial footprint. Most importantly, we studied production of the Delmar and the Harley Davidson factory in York, Pennsylvania.

In addition, we capped a very strong growth quarter that was up 19% in 2022 from our Q3 revenue standpoint improved global pricing and our continued focus on core motorcycle mix of touring and cruiser motorcycles were able to partially offset the unit decline. This.

Karim Donnez: This is an important milestone for LiveWire. After a multi-year investment in the S2 platform and the in-house development of the LiveWire battery pack, motor, power electronics and software. We believe these investments have given us an industry leading technology and the capability to rapidly adapt and advance the S2 platform while reducing LiveWire's dependency on third-party supplies. Our early customers have now started to receive their Delmar and the bikes are on the road in the US.

US to turn in a consistent margin performance on a year to date basis.

Turning to our financial results in the third quarter total consolidated <unk> revenue of $1 5 billion.

Was down 6% compared to last year.

The breakdown was at AT&T revenue declined by 9% at <unk> revenue grew by 15% and at <unk> revenue declined by 45%.

Karim Donnez: Those riders that have experienced Delmar are impressed by how the bike delivers on the LiveWire promise with outstanding specs and a more accessible price. With production, now renting out, we expect to see increasing volumes in Q4 as we get more bikes to more customers.

Total consolidated HDI operating income was $209 million, which was $129 million lower than the prior year.

Download at <unk> operating income of $175 million was 37% lower than the prior year at.

At <unk> operating income of $59 million declined by 27% on a year over year basis and at <unk>, an operating loss of $25 million was in line with our expectations.

Karim Donnez: We recently announced European pricing for the Denmark, confirmed delivery days in Q1, 2024 and open reservations. Two weeks ago, we hosted media and influencers from across the European market at a Denmark press event in Barcelona, building early momentum from the spring-riding season. Our development teams are working hard to leverage the existing basic and live-wire platforms to expand the group's portfolio and bring more options to more riders. As we do to the end of the fiscal year, our cash investments are in line with our plans. We also expect to meet our most recent guidance based on demand and current baby production outputs.

Third quarter earnings per share of $1 38 is down 22% as a result of the factors noted.

As we look at our year to date results.

Consolidated HDI revenue of $4 8 billion was up 4% compared to the same period last year.

The breakdown of this was at <unk> revenue increased by 2% at <unk> revenue grew by 17% and at live wire revenue declined by 39%.

Total consolidated HDI operating income was $800 million, which is $105 million lower than the prior year. The breakdown of that one at <unk> operating income of $705 million compares to $709 million in the prior year's period, reflecting a strong operating margin of 17.

Jonathan Root: Thank you, and now handing over to Jonathan. Thank you, Karim, and good morning, everyone. The third quarter of 2023 is the fourth time under our new reporting structure with the three business segments of HTML, HDFS and live-wire. In Q3, global wholesale shipments decreased by 20% as Jochen referenced earlier due to the production suspension announced in late Q2, prudent dealer inventory management and market conditions in line with our latest guidance. In addition, we come to a very strong growth quarter that was up 19% in 2022.

4% in 2023 year to date.

At <unk> operating income of $177 million declined by 30% and at LIBOR here.

An operating loss of $82 million was in line with our expectations.

Year to date earnings per share of $4 65 compares to $4 68.

Last year.

Global retail sales of new motorcycles were down 16% versus the prior year.

North America Q3, retail sales declined by 15% driven by the impact of a high interest rate environment and a consumer discretionary purchase decision in.

Jonathan Root: From a Q3 revenue standpoint, improved global pricing and our continued focus on core motorcycle mix of touring and cruiser motorcycles were able to partially offset the unit declines. This enabled us to turn in a consistent margin performance on a year-to-day basis. Turning to our financial results in the third quarter, total consolidated HDI revenue of $1.5 billion was down 6% compared to last year. The breakdown was at HDMC revenue declined by 9% at HDFS revenue grew by 15% and at live-wire revenue declined by 45%.

In addition, the discontinuation of legacy Sportster bikes at the end of 2022 continues to have an adverse impact on noncore unit sales.

In EMEA Q3, retail sales declined by 13% driven by the planned unit mix shift towards profitable core product segments.

Core bikes now comprised 80% of sales up from 70% in 2022.

In Q3 touring bikes were up 10% versus prior year.

In Asia Pacific Q3, retail sales declined by 24% versus prior year, which is down sequentially relative to Q2, 'twenty three while retail sales were up 24%.

Jonathan Root: Total consolidated HDI operating income was $209 million, which was $129 million lower than the prior year. The breakdown was at HDMC operating income of $175 million was 37% lower than the prior year. At HDFS, operating income of $59 million declined by 27% on a year-over-year basis and at live-wire and operating loss of $25 million was in line with our expectations. Third quarter earnings per share of $1.38 is down 22% as a result of the factors noted.

The weakness in Asia Pacific was primarily driven by weaker than expected demand in China for the Chinese economy was softer than we had expected.

In Latin America, Q3, retail sales declined by 11% driven by weakness in Brazil that was partially offset by growth in Mexico.

Beneath the surface of our Q3 retail result, we note that the production suspension that we experienced for several weeks in June and July of 2023 had an adverse impact on retail sales, particularly in the key north American market it delayed deliveries and high demand units to the end of Q3, rather than earlier in the season.

Jonathan Root: As we look at our year-to-date results, total consolidated HDI revenue of $4.8 billion was up 4% compared to the same period last year. The breakdown of this was at HDMC revenue increased by 2% at HDFS revenue grew by 17% and at live-wire revenue declined by 39%. . Total consolidated HCI operating income was $800 million, which is $105 million lower than the prior year. The breakdown of this one, at HBMC, operating income of $705 million, compares to $709 million in the prior year's period, reflecting a strong operating margin of 17.4% in 2023 year to date.

It also created challenges in the distribution and of the inventory in the channel.

This held back our preferred motorcycle mix versus what we had expected.

On a year over year basis average inventory in Q3 was up by more than 50% to broadening product availability compared to the exceptionally tight levels of 2021 and 2022 dealer.

Dealer inventory continues to be down versus 2019 levels. We believe current dealer inventory plus remaining 2023 calendar year shipment will support the rest of Q4 and early Q1 of 2024.

From a retail pricing standpoint, new Harley Davidson motorcycle transaction prices in the U S year to date have been broadly in line with our desirability threshold plus or minus two percentage points of MSRP.

Jonathan Root: At HDFS, operating income of $177 million, declined by 30% and at live wire. An operating loss of $82 million was in line with our expectations. Year-to-date earnings per share of $4.65, compares to $4.68 last year. Global retail sales of new motorcycles were down 16% versus the prior year. In North America, Q3 retail sales declined by 15% driven by the impact of a high interest rate environment on consumer discretionary purchase decisions. In addition, the discontinuation of legacy sports derbikes at the end of 2022 continues to have an adverse impact on non-core unit sales.

At the <unk> segment revenue declined by 9% due to lower wholesale units shipped in Q3 wholesale units were down 20% in Q3.

Looking at the AT&T revenue bridge and focusing on the key drivers for the quarter 18 points of decline came from decreased volume at <unk>, which was primarily driven by the previously mentioned decrease in wholesale motorcycle unit shipment.

Three points of growth came from pricing through both global MSRP increases and pricing across the parts and accessories and apparel and licensing businesses.

Mix contributed six points of growth as we continue to prioritize our most profitable models and markets.

Jonathan Root: In Amia, Q3 retail sales declined by 13%, driven by the planned unit, mixed shift towards profitable core product segments. Core bikes now comprise 80% of sales up from 70% in 2022. In Q3, touring bikes were up 10% versus prior year. In Asia Pacific, Q3 retail sales declined by 24% versus prior year, which is down sequentially relative to Q2-23, when retail sales were up 24%. The weakness in Asia Pacific was primarily driven by weaker than expected demand in China, where the Chinese economy was softer than we had expected.

Finally, foreign exchange was flat in Q3.

At <unk> operating income of $175 million in Q3 was $6 one point lower than prior year, driven by lower wholesale shipments and higher operating expenses.

<unk> gross margin in Q3 was 31, 7%, which compares to 34, 4% in the prior year.

Decline of two seven points or 270 basis points was driven by the negative impacts of lower volume.

Unfavorable manufacturing impacts and foreign currency more than offsetting the positive impact from pricing and shipment mix.

Jonathan Root: In Latin America, Q3 retail sales declined by 11% driven by weakness in Brazil that was partially offset by growth in Mexico. Beneath the surface of our Q3 retail result, we note that the production suspension that we experienced for several weeks in June and July of 2023 had an adverse impact on retail sales, particularly in the key North American market. It delayed deliveries in high demand units to the end of Q3 rather than earlier in the season.

We experienced more modest cost inflation, which was approximately 1% in Q3.

On a year over year basis, the deceleration continues to be largely driven by logistics, including lower expedited shipping expenses and favorable ocean freight rate.

Raw materials and metal markets have also continued to moderate.

<unk> operating margin came in at 13, 5% in Q3 from 19, 6% in the prior year.

The decrease was due to higher operating expense, including higher people costs and marketing spend.

Jonathan Root: It also created challenges in the distribution and mix of the inventory in the channel. This held back our preferred motorcycle mix versus what we had expected. On a year-over-year basis, average inventory in Q3 was up by more than 50% to broaden product availability compared to the exceptionally tight levels of 2021 and 2022. Dealer inventory continues to be down versus 2019 levels. We believe current dealer inventory plus remaining 2022 calendar your shipment will support the rest of Q4 and early Q1 of 2024.

For the year to date period at <unk> operating income of $705 million compares to $709 million of operating income in the prior period.

<unk> operating margin of 17, 4% in the year to date period is approximately 50 basis points lower than the prior period.

<unk> decreased due to the negative effects of volume foreign currency supply chain costs and higher operating expense offset by the positive effects of higher pricing and improved mix.

Yeah.

Jonathan Root: From a retail pricing standpoint, new Harley Davidson motorcycle transaction prices in the US year-to-date have been broadly in line with our desirability threshold of plus or minus 2 percentage points of MSRP. At the HVMC segment, revenue declined by 9% due to lower wholesale units shipped in Q3, wholesale units were down 20% in Q3. Looking at the HDMC revenue bridge and focusing on the key drivers for the quarter, 18 points of decline came from decreased volume at HDMC, which was primarily driven by the previously mentioned decrease in wholesale motorcycle unit shipment.

At Harley Davidson financial services revenue increased by 15% driven by higher finance receivable and higher interest income.

Hff's operating income in Q3 was $59 million down 27% compared to last year.

The Q3 decline was driven by higher borrowing costs as well as higher provision for credit losses, due to realized credit losses, and an increase in the credit reserves.

In Q3, <unk> as the annualized retail credit loss ratio came in at two 7%, which compares to two 6% in Q2 of this year.

During the quarter losses, followed their typical seasonality curve with performance in line with expectation.

Jonathan Root: Three points of growth came from pricing through both global MSRP increases and pricing across the parts and accessories and apparel and licensing businesses. Mix contributed six points of growth as we continue to prioritize our most profitable models and markets, and finally, foreign exchange was flat in Q3. At HDMC, operating income of $175 million in Q3 was 6.1 points lower in prior year, driven by lower wholesale shipment and higher operating expenses. HDMC gross margin in Q3 was 31.7%, which compares to 34.4% in the prior year.

These levels compare to an annualized loss of one 9% in full year 2022.

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

In addition, the allowance for credit losses for the third quarter increased to five 4% up from five 3% in Q2 and from five 1% during fiscal 2022.

Total retail loan originations in Q3 were down 15%, while commercial lending receivables were up 39% to $105 billion.

Jonathan Root: The decline of 2.7 points or 270 basis points was driven by the negative impacts of lower value, unfavorable manufacturing impacts, and for currency more than offsetting the positive impacts from pricing and shipment. We experienced more modest cost inflation, which was approximately 1% in Q3. On a year-over-year basis, the deceleration continues to be largely driven by logistics, including lower expedited shipping expenses and favorable ocean freight rates. Raw materials and metal markets have also continued to moderate.

Behind stronger product availability compared to prior year.

Total quarter end net financing receivables, including both retail loans and commercial lending receivables.

Seven 7 billion.

Which was up 4% versus prior year.

Total interest expense in Q3 was up $23 million or up 38% versus prior year. The increase was driven by higher cost of funds at lower interest rate debt matured and was replaced with current market rate debt.

Through the end of Q3, we raised approximately $2 5 billion in the capital markets cash and committed bank and conduit facilities resulted in an H DFS liquidity position of $2 5 billion.

Jonathan Root: HDMC operating margins came in at 13.5% in Q3 from 19.6% in the prior year. The decrease was due to higher operating expense, including higher people costs and marketing spend. For the year-to-day period at HDMC, operating income of $705 million compares to $709 million operating income in the prior period. HDMC operating margin of 17.4% in the year-to-day period is approximately 50 basis points lower than the prior period. The small decrease is due to the negative effects of volume, foreign currency, supply chain costs, and higher operating expense offset by the positive effects of higher pricing and improved mix.

We believe this has put <unk> in a very strong position from both the funding and liquidity perspective.

Okay.

For the live wire segment third quarter revenue decreased from 15 million to $8 million.

Versus prior year due to the lower unit sales of live wire, one electric motors cycles and states electric balanced bikes.

During the third quarter of 2023 live wire began shipping del Mar the first motorcycle on the company's S II platform.

<unk> operating loss of $25 million was in line with expectations and driven by planned development costs to advance EV system activities around del Mar and cost of standing up a new organization.

Jonathan Root: At Harley-Davidson Financial Services, revenue increased by 15% driven by higher finance receivables and higher interest income. HDFS operating income in Q3 was $59 million down 27% compared to last year. The Q3 decline was driven by higher borrowing costs as well as higher provision for credit losses due to realized credit losses and an increase in the credit reserves. In Q3, HDFS's annualized retail credit loss ratio came in at 2.7%, which compares to 2.6% in Q2 of this year.

Third quarter also saw a sequential decrease in LIBOR <unk> operating loss of $7 million as compared to the second quarter of 2023.

Wrapping up with Harley Davidson, Inc. Financial results year to date, we delivered $707 million of operating cash flow, which was up $132 million from the prior year.

The increase in operating cash flow was due to positive working capital activity driven by a larger decrease in inventory in the first nine months of 2023 versus the same period in 2022.

Jonathan Root: During the quarter, losses followed their typical seasonality curve with performance in line with expectations. These levels compare to an annualized loss of 1.9% in full year 2022. The increase in credit losses was driven by several factors relating to the current macroeconomic environment. In addition, the allowance for credit losses for the third quarter increased to 5.4% up from 5.3% in Q2 and from 5.1% during fiscal 2022. Total retail loan originations in Q3 were down 15% while commercial lending receivables were up 39% to $1.05 billion behind stronger product availability compared to prior year.

Total cash and cash equivalents ended at $1 9 billion, which was $148 million higher than at the end of Q3 prior year.

<unk> consolidated cash number includes $200 million from LIBOR here.

Additionally, during the first nine months of 2023 as part of our capital allocation strategy, we bought back $6 1 million shares of our stock at a value of $226 million.

As we look to the rest of 2023, we are reaffirming our most recent full year guidance, which expect <unk> revenue growth of flat to plus 3%.

<unk> operating income margin of 13 nine to 14, 3%.

We continue to believe the anticipated positive impact from pricing and our cost productivity efforts within supply chain will offset expected cost inflation and currency headwinds.

Jonathan Root: Total quarter end net financing receivables including both retail loans and commercial lending receivables was $7.7 billion which was up 4% versus prior year. Total interest expense in Q3 was up $23 million or up 38% versus prior year. The increase was driven by a higher cost of funds as lower interest rate debt matured and was replaced with current market rate debt. Through the end of Q3 we raised approximately $2.5 billion in the capital market.

At <unk>, we continue to expect operating income to decline by 20% to 25%.

In Q3, we experienced higher realized credit losses than in Q2 is seasonality played out as we had expected.

We continue to stay focused on several actions underway to effectively manage the business in today's credit environment, including increased investment behind collection and stronger repossession efforts.

Jonathan Root: Cash and committed bank and conduit facilities resulted in an HDFS liquidity position of $2.5 billion. We believe this is put HDFS in a very strong position from both a funding and liquidity perspective. For the LiveWire segment, third quarter revenue decreased from $15 million to $8 million versus prior year due to the lower unit sales of LiveWire 1 electric motors cycles and static electric balance bikes. During the third quarter of 2023 LiveWire began shipping Delmar, the first motorcycle on the company's S2 platform.

And we continue to build other revenue sources, such as licensing trademark revenue and insurance revenue, which continued to exceed that from the same period prior year.

LIBOR Air continues to expect unit sales between 601000 unit and an operating loss range of $115 million to $125 million.

This forecast incorporates the updated launch timing of the new del Mar electric motorcycle.

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

Jonathan Root: LiveWire operating loss of $25 million was in line with expectations and driven by planned development costs to advance EV systems activities around Delmar and costs of standing up a new organization. Third quarter also saw a sequential decrease in LiveWire's operating loss of $7 million as compared to the second quarter of 2023. Wrapping up with Harley Davidson bank financial results, year-to-date we delivered $707 million of operating cash flow, which was up $132 million from the prior year.

Through the first nine months of the year, we have seen cost inflation generally in line with our expectations and continue to expect in aggregate about one to two points of inflation for the full year of 2023 compared to 4% in 2022.

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

We now expect $70 million of cost productivity in 2023 as a result of the updated production environment. This is down from an estimate of $100 million at the end of Q2.

Jonathan Root: The increase in operating cash flow was due to positive working capital activity driven by a larger decrease in inventory in the first nine months of 2023 versus the same period in 2022. Total cash and cash equivalence ended at $1.9 billion, which was $148 million higher than at the end of Q3 prior year. This consolidated cash number includes $200 million from LiveWire. Additionally, during the first nine months of 2023, as part of our capital allocation strategy, we bought back $6.1 million shares of our stock at a value of $226 million.

For <unk>, we expect the operating income declines to moderate in the last quarter of the year as we begin to comp the interest rate increases and normalizing that began in late 2022.

As we look at capital allocation for the remainder of 2023, our priorities remain to fund the growth of the hard wire initiatives, which includes the capital expenditures mentioned previously.

Paying dividend and executing discretionary share repurchases.

In summary, we are pleased with the resiliency of our financial results, especially our margin performance. Despite a complex retail environment.

Jonathan Root: As we look to the rest of 2023, we are reaffirming our most recent full-year guidance, which expects HEMC revenue growth of flat to plus 3%, HEMC operating income margin of 13.9 to 14.3%. We continue to believe the anticipated positive impacts from pricing and our cost productivity efforts within supply chains will offset expected cost inflation and currency headwinds. At HTFS, we continue to expect operating income to decline by 20 to 25%. In Q3, we experience higher realized credit losses than in Q2 as seasonality played out as we had expected.

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

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

Also ask you.

You to limit yourself to one question and return to the queue for any additional questions. Thank you.

First question comes from Craig Kennison from Baird. Please go ahead.

Hey, good morning, Thanks for taking my question.

Between retail sales and your each DFS portfolio, you have very good insight into the areas of stress.

Jonathan Root: We continue to stay focused on several actions underway to effectively manage the business in today's credit environment, including increased investments behind collections and stronger reposition efforts. And we continue to build other revenue sources, such as licensing and trademark revenue and insurance revenue, which continues to exceed that from the same period prior year. And 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.

Consumers facing today I'm, just wondering how you would describe the U S consumer today at various income levels and credit tiers, and then what the key pages of your recession playbook might be if we indeed entering a recession in 'twenty four.

Hi, Good morning. Thank you for your question I think we see some of the elements that you are describing around consumer health show up in a couple of different metrics. We certainly in the first place the a lot of customers sitting on the sidelines essentially just putting these this level of a discretionary purchase to the side.

In 2023, which obviously for us the business that is very much dependent upon an upgrade cycle of certain regularity, if quite a meaningful impact that I think is the first factor we have understanding of that your market research suggest customers sort of putting a purchase of this nature out of their mines in a year like 2023.

Jonathan Root: Through the first nine months of the year, we have seen cost inflation generally in line with our expectations and continue to expect in aggregates about one to two percent. We now expect $70 million of cost productivity in 2023 as a result of the updated production environment. This is down from an estimate of $100 million at the end of Q2. For HDFS, we expect the operating income declines to moderate in the last quarter of the year, as we begin to comp the interest rate increases and normalizing losses that began in late 2022. As we look at capital allocation for the remainder of 2023, our priorities remain to fund the growth of the hardlier initiatives, which includes the capital expenditures mentioned previously, paying dividends and executing discretionary sharing purchases.

Secondly, you see a lot of customers, maybe even those with high credit worthiness looking at the level of the rates and saying that having a certain amount of rate shock thing, we're not going to pay those level of rate based also on many years in many decades of lower rates.

But that is the second place where it shows up and then the third level is potentially for more credit challenged customers are customers that have different income level potentially a little bit lower just looking at the monthly payment that result, particularly when you consider a trade in that might be worth a little bit less given what was paid for it in 'twenty, one 'twenty two not seeing the ability to.

It really adds to their monthly payment to manage an upgrade or a new motorcycle purchases.

Unlimited affordability within their month to month budget.

It is prevalent within a couple of different places just people setting hitting this year out people not willing to pay those rates and then just difficulty potentially in reaching the monthly payment.

Jonathan Root: In summary, we are pleased with the resiliency of our financial results, especially our margin performance despite a complex retail environment.

I'll, let Jonathan in a minute comment a little bit more on the health of the customer but to your second point around our recession playbook. Our recession playbook is very much rooted in our strategy, which is we intend to continue to defend and protect their most important and profitable categories for our business.

Unknown Executive: And with that, I'll turn it back to the operator to take your questions. Thank you. As a reminder to ask a question, please press star one on your telephone keypad to withdraw your question, please press star one. We also ask you to limit yourself to one question and return to the queue for any additional questions. Thank you.

Shawn Hall categories of touring Trike, <unk> soft tail.

Ken mentioned in his commentary and even in a difficult year like this one we have seen that where we have a stronger value proposition and product innovation.

Craig Kennison: Your first question comes from Craig Caniston from Baird. Please go ahead. Hey, good morning. Thanks for taking my question. You know, between retail sales and your HDFS portfolio, you have very good insight into the areas of stress. The consumer is facing today. I'm just wondering how you would describe the US consumer today at various income levels and credit tiers.

Seen relatively stronger performance that we.

We intend to continue emphasizing innovation and development in those stronghold categories. We will continue to work with <unk> and with our dealers who are the best in the business with the right tools to put in the market.

To be able to make each and every customer that is interested in a motorcycle.

To be able to find the right combination of factors in the write back for them and continuing to do other important aspects of our business like used motorcycles like <unk> to make sure that consumers are still flowing because their dealerships and still have the opportunity to engage with our brand even in a recessionary environment.

Jochen Zeitz: And then what the key pages of your rest session playbook might be if we indeed enter every session in 24. Very good morning. Thank you for your question. I think we see some of the elements that you are describing around consumer health show up in a couple of different metrics. We certainly in the first place see a lot of customers sitting on the sidelines, essentially just putting these this level of a discretionary purchase to the side in 2023, which obviously for us a business that is very much dependent upon an upgrade cycle of certain regularity is quite a meaningful impact.

Thank you.

Sure.

Before Jonathan takes on just.

In terms of recession playbook, obviously, we are going to take a hard look at the opex.

Cost productivity I think those are two areas where.

We have room for improvement given the developments in the market.

We know that in the last couple of years cost productivity due to the inflationary pressures that we've seen has declined.

Jochen Zeitz: That I think is the first factor we have understanding of that to market research of just customers, sort of putting a purchase of this nature out of their minds in a year like 2023. Secondly, you see a lot of customers, maybe even those with high-credited worthiness, looking at the level of the race and saying that having a certain amount of race shock and saying we are not going to pay those level of race based also on many years and many decades of lower race.

And Thats something we are taking we are taking a very hard look at in addition to opex in order to be prepared for no matter what comes our way.

Okay.

Thank you again and I'll just add a couple of a couple of points I think <unk> covered this really nicely but.

I think with where we are and in consumer health. We are seeing a more stressed consumer so as we reach out to the consumer from an <unk> perspective, they are working a little harder to balanced payments across their portfolio of them, where they were certainly when you look at the segments. There is more attention in subprime than there is in prime.

Jochen Zeitz: That is the second place where it shows up. And then the third level is potentially for our more credit-challenge customers or customers at a different income level, potentially a little bit lower, just looking at the monthly payment that results, particularly when you consider it as a trade-in that might be worth a little bit less given what was paid for it in 2021 and 22, not seeing the ability to really add to their monthly payment to manage an upgrade or a new motorcycle purchase, just a limit of affordability within their month-to-month budget. So it is prevalent in a couple of different places, just people sitting this year out, people not willing to pay those rates and then just difficulty potentially in reaching the monthly payment.

Across the HFF business for a number of years, we've been reducing our exposure to the subprime side. So the portfolio has less subprime consumers than it has.

Versus the last few years.

To provide a little bit of color in terms of where we are in delinquency.

Certainly seeing delinquency up a little bit versus the same period prior year.

This is this is also demonstrated and disclosed on our page 13, where we walk through what we're seeing from a credit loss standpoint is that kind of moves up.

Jochen Zeitz: Oh, that's honest, and in a minute comments a little bit more on the health of the customer, but to your second point around our recession playbook, our recession playbook is very much rooted in our strategy, which is we intend to continue to defend and protect the most important and profitable categories for our business, our stronghold categories of touring, trike, reveal and self-tail. As Yoken mentioned in his commentary, and even in a difficult year like this one, we have seen that where we have a stronger value proposition, product innovation, we see relatively stronger performance, so that intend to continue emphasizing innovation and development in those stronghold categories.

And then with that we've taken some changes in the in the provision to make sure that we are covered from a future perspective.

And then just touching a little bit further on recession playbook I think you can hit on a couple of really good thoughts right, making sure that we're looking at the Opex side of our business.

To ensure that we're bringing out costs, where we can we're not stopping there. We are continuing to go a little further and make sure that we are thinking about the cost of goods sold side and really diving in there to ensure that we can hit targets.

Then the last piece I think is from our recession playbook perspective, when we look at <unk> and think about some of the nearer term actions that we can take obviously the portfolio that you have is the one that you work with so from from the standpoint of what we do day in and day out it's really about making sure that we have the appropriate collection staff in place that we're going after customers in a way.

Jochen Zeitz: We will continue to work with HDFS and with our dealers who are the best in the business, with the right tools to put in the market to be able to make each and every customer that is interested in a motorcycle be able to find the right combination of factors and the right bike for them and continue to do other important aspects of our business like used motorcycles, like PNA and ANL to make sure that consumers are still flowing through the dealerships and still have the opportunity to engage with our brand. Even in a recessionary environment. Thank you.

That's fair and helps bring them current.

And then we also look at kind of different technology tools that we can use that to help our associates and help our customers reaching out to customers and different fashion, so rather than just in a telephone approach. We make sure that we can use tax that were using E mail that were really allowing customers to interact with us in ways that they want to and then last point.

Jonathan Root: Before Jonathan takes on just in terms of recession playbook, obviously we are going to take a hard look at OPEX and cost productivity. I think those are two areas where we have room for improvement, given the developments in the market, and obviously we know that in the last couple of years cost productivity due to the inflationary pressures we've seen has declined. And that's something we're taking a very hard look at in addition to OPEX in order to be prepared for no matter what comes our way.

Then I'll touch on is that we do actually run our calls through through.

And AI process to really look and make sure that we're comfortable with the way that our collectors are interacting with consumers. So overall I think very good question something that we certainly feel like we're managing.

In line with the environment that we're in.

But again good question. Thank you so much.

Your next question comes from the line of Robbie Holmes from Bank of America. Please go ahead.

Jonathan Root: Okay, thanks, Yoken. I'll set a couple of points. I think Adele covered this really nicely, but I think with where we are in consumer health, we are seeing a more stressed consumer. So as we reach out to the consumer from an HDFS perspective, they are working a little harder to balance payments across their portfolio than where they were. Certainly when you look at the segments, there's more tension in subprime than there is in prime.

Hey, good morning, Thanks for taking my question I was I was hoping.

Yoga and everyone could maybe give us some thoughts on the dealer inventory levels.

Or are they still out of balance and are you is there a lot of work to do to get them more in balance in terms of more trikes and less sportster and things like that and what.

What would be the timing of getting the dealers and the position you would want them to be from the inventory mix standpoint and.

Jonathan Root: Across the HDFS business for a number of years we've been reducing our exposure to the subprime side so the portfolio has less subprime consumers than it has, you know, versus the last few years. To provide a little bit of color in terms of where we are in delinquency, we're certainly seeing delinquency up a little bit versus the same period prior year. This is also demonstrated and disclosed on our page 13 where we walk through what we're seeing from a credit loss standpoint as that kind of moves up.

And related to that.

How should we think about.

Supporting dealer promotions going forward and also maybe supporting each DFS promotions as well as should we think about that for the fourth quarter.

As an impact on gross margin and any thoughts on how that might spill into the first half of next year.

Thank you Ravi for your question, let me touch upon the point around inventory first so certainly we have been working throughout the course of Q3 to ensure that we are getting to the right.

Jonathan Root: And then with that, we've taken some changes in the provision to make sure that we are covered from a future perspective, and then just touching a little bit further on Recession Playbook. I think Jochen hit on a couple of really good thoughts, right? Making sure that we're looking at the op-x side of our business to ensure that we're bringing out costs where we can. We're not stopping there. We are continuing to go a little further and make sure that we are thinking about the cost of good sold side and really diving in there to ensure that we can hit targets.

The level and the right mix of inventory as you appropriately note in the channel.

Certainly no secret that as we have gone through some of the supply disruption that you can reference which has shown up in both our supply chain as well as an overall the timing of the unit.

That are available in the dealer that has led to some impact upon our ability to retailer within the quarter.

Jonathan Root: And then the last piece, I think, is from a Recession Playbook perspective when we look at HDFS and think about some of the near-term actions that we can take. Obviously, the portfolio that you have is the one that you work with. So from the standpoint of what we do day in and day out, it's really about making sure that we have the appropriate collection staff in place, that we're going after customers in a way that's fair and helps bring them current.

As I said, a combination of timing of when the units arrived with a mix of units that we have in the channel I'll certainly there are dealers that are better.

Sorry about the level of inventory given particularly high floor plan costs are today I think you would find in our network that there is still a healthy number of dealers that would say that their concerns are more focused around the mix of the inventory that they have.

Jonathan Root: And then we also look at kind of different technology tools that we can use to help our associates and help our customers. So reaching out to customers in different fashion. So rather than just in a telephone approach, we make sure that we can use text that we're using email that we're really allowing customers to interact with us in ways that they want to. And then the last point that I'll touch on is that we do actually run our calls through an AI process to really look and make sure that we're comfortable with the way that our collectors are interacting with consumers. So overall, I think a very good question. Something that we certainly feel like we're managing in line with the environment we're in. But again, good question. Thank you so much.

Things like <unk> and the timing of when those units.

Have made it to their dealership. So we are working through the remainder of the year.

As we wrap up our production model year 'twenty three to ensure that we are focused on those units that are in highest demand and that we manage and mix at the level of individual models and to be closer to what we believe will be necessary in Q4 and even into the early part of the year.

Important to note that the inventory that we have now plus any remaining shipments of model year 'twenty. Three is in fact, the inventory that supports our retails largely into into the new year.

Now to your question on an overall level of promotion and how do we expect that to play out.

Bob Robbie Holmes: Your next question comes from the line of Bob Robbie Holmes from Bank of America. Please go ahead. Hey, good morning. Thanks for taking my question. I was I was hoping on, you know, Yoke and and everyone could maybe give some thoughts on the dealer inventory levels. And are they still out of balance? And are you? Is there a lot of work to do to get them more in balance in terms of, you know, more trikes and less sportsters?

We have been using some of these tools really to help us against our strategic inventory objective to make sure that we are balancing that mix in some of the.

Bob Robbie Holmes: And things like that. And, you know, what what would be the timing of getting the dealers in the position you would want them to be in from the inventory mixed standpoint. And in related to that, how should we think about, you know, supporting dealer promotions going forward and also maybe supporting HDFS promotions as well is, should we think about that for the fourth quarter? As an impact on gross margin and any thoughts on how that might spill into the first half of next year?

Some of the.

Challenges that maybe in the in the overall distribution of inventory in our network. These promotions in many instances have been a reallocation of sales incentives.

That would've been present in other formats. So we have found that their impact to date on our gross margin is somewhat new.

Got it.

But we're really trying to ensure that we are driving traffic that we are supporting our dealers and our most loyal customers.

In this environment and that we are again managing against those strategic inventory objective youll find that they are very targeted and very specific on families and models that we think are priority.

Maybe just one last point broadly on the question of inventory.

This environment, we have found that it is necessary for us to operate at higher levels of inventory than we would have seen in 'twenty, one or 'twenty two.

Jochen Zeitz: Thank you, Robbie, for your question. Let me touch upon the point around inventory first. So certainly we have been working throughout the course of two, three to ensure that we are getting to the right level and the right mix of inventory as you appropriately note in the channel. It is certainly no secret that as we have gone through some of the supply disruption, but Yoke and reference which has shown up in both our supply chain as well as an overall the timing of the units that are available in the dealer that that has led to some impact upon our ability to retail within the quarter.

That the customer demand is a little bit more moderated and there is a little bit more specificity on what the customer is looking for and certainly even supply disruptions have added to our need to have a little bit more inventory in the channel to make sure that we can meet consumer demand for the specific banks that they are looking for.

I wanted to note that as well.

That's very helpful. Thank you.

Your next question comes from the line of Joseph <unk> from Raymond James. Please go ahead. Thanks.

Jochen Zeitz: Either as I said a combination of timing is when the units arrive or the mix of units that we have in the channel. Well, certainly there are, you know, dealers that are that are concerned about the level of inventory given particularly what floor plan costs are today. I think you would find in our network that there is still a healthy number of dealers that would say that their concerns are more focused around the mix of the inventory that they have.

Thanks. Good morning, just wanted to follow up on that last commentary regarding your dealer inventories you mentioned that they are elevated versus 'twenty, one and 'twenty two.

If my math is right I have you guys got about 15 weeks on hand, I think you ended last year around 10 weeks.

So just so I'm clear it sounds like Youre comfortable at that 15 week level overall.

Jochen Zeitz: As you know, things like trikes and even our new CVOs and the timing of when those units have have made it to their dealership. So we are working through the remainder of the year as we wrap up our production of model year 23 to ensure that we are focused on those units that are in highest demand and that we manage and mix. At the level of individual model and to be closer to what we believe will be necessary in Q4 and even into the early part of the year.

Or do you think that number to come down a little bit next year somewhere between that 10 or 15 week number.

Yes.

Joseph they're comfortable with that number at this point, obviously, we'll have to see how the fourth quarter unfolds, but all the effects that Dell has mentioned.

Into into this.

And therefore from today's perspective, we feel that the inventory levels. Okay.

Okay. Thank you.

Jochen Zeitz: It's important to note that the inventory that we have now plus any remaining shipments of model year 23 is in fact the inventory that supports our retail largely into into the new year. Now to your question on an overall level of promotion and how do we expect that to play out. We have been using some of these tools really to help us against our strategic inventory objective. Make sure that we are balancing that mix and some of the some of the challenges that may be in the in the overall distribution of inventory in our network.

Your next question comes from the line of James Hardiman from Citi. Please go ahead.

Hey, good morning, Thanks for taking my call. So I was hoping maybe.

Jochen Zeitz: These promotions in many instances have been a reallocation of sales incentive that would have been present in other forms. So we have found that their impact to date on our growth margin is somewhat muted, but we're really trying to ensure that we are driving traffic that we are supporting our dealers and our most loyal customers in this environment, and that we are again managing against those strategic inventory objective. So you will find that they are very targeted and very specific on families and models that we think are priority.

We could bridge the gap between.

Sort of where we are from a retail perspective.

The guidance I think we're down about 9% year to date.

Got it. Thank you is worse than.

Were you previously thought it would be in yet.

<unk> guidance is still for flat to up 3%. So obviously pricing seems to be playing a role you got a big benefit in the third quarter, but maybe help us bridge that gap for the year.

Really more specifically you can see you've already reported the first three quarters for the fourth quarter I get to about flattish revenues implied.

For <unk> and the <unk>.

Fourth quarter I guess, how do you get there what are you assuming for retail.

AFP shipments et cetera.

Jochen Zeitz: Maybe just one last point broadly on the question of inventory. In this environment, we have found that it is necessary for us to operate at higher levels of inventory than we would have seen in 21 or 22 just that the customer demand is a little bit more moderated and there is a little bit more sort of specificity on what the customer is looking for and certainly even supply disruptions have added to our need to have a little bit more inventory in the channel to make sure that we can meet consumer demand for the specific bikes that they are looking for. We just wanted to know that as well. That's very helpful.

Yes, Thanks, James I think look we are not providing retail guidance.

Unknown Executive: Thank you.

And from a wholesale perspective.

I think you've done the math right.

What you should from a retail perspective bear in mind then.

Elaborated on that during the during the <unk>.

Grip is.

Actually more than 50% of the retail decline is attributed to the retirement of the sportster right. So that has a significant effect and that will continue.

All the way until the sports is retired out which is more or less at the end of the second quarter.

Joseph Altobello: Your next question comes from the line of Joseph Altabello from Raymond James. Please go ahead. Thanks. Good morning. Just want to follow up on that last commentary regarding the other inventory. You should mention that they are elevated versus 21 and 22. And if my math is right, I have you guys about 15 weeks on hand. I think you ended last year around 10 weeks. So just so I'm clear, it sounds like you're comfortable at that 15 week level overall.

And that's in line with our strategy so bear that in mind when you when you look at retailers and retail declines.

Yeah, and I think the only piece that I would add on that.

As we think about the business and its demonstrated in our year to date basis is the strength of what we have seen from a from a mix and a pricing perspective. So obviously I know there is often a focus out there in terms of unit units the units and as we look at how we're running the business.

We are certainly working to make sure that we're maintaining.

Joseph Altobello: Or do you think that number comes out to come down, but next year somewhere between that 10 and 15 week number. Yeah, we are, we are Joseph comfortable with that number at this point. Obviously, we'll have to see how the fourth quarter unfolds. But all the effects that Adele has mentioned, you know, play into into this. And therefore from today's perspective, we feel that the inventory level is okay. Thank you.

Price advantage wherever we can.

Okay.

Okay.

That's helpful I'll hop in the queue bankruptcy. Thanks, guys.

I think.

James as a little bit of additional context, when we compare things right often there is reference made to 2019 and.

Besides the fact that it's a completely different environment with many effect is different today versus 2019, including obviously interest rates and consumer sentiment our HDD see profitability went from nine 1% to 17, 4% and eight 3% increase.

James Hardiman: Your next question comes from the line of James Hardiman from city. Please go ahead. Thank you. Good morning. Thanks for taking my call. So I was hoping maybe we could bridge the gap between sort of where we are from a retail perspective. And the guidance that I think we're down about 9% year today, which I've got to think is worse than where you previously thought it would be. And yet the the HBMC guidance is still for flat up 3%.

James Hardiman: So, you know, obviously pricing seems to be playing a role. You got a big benefit in the third quarter. So maybe help us bridge that gap for the year and really more specifically since you've already reported the first recorders for the fourth quarter. I get to about flatish revenues implied for HBMC in the in the fourth quarter. I guess how do you get there? What are you assuming for retail? Pay at P shipments, etc. Yeah, thanks, James.

Sandridge point increase so.

That's substantial than I think.

It's a testament that even in this current environment that we're in that the strategy is working.

And the profitability is there.

And that's on a year to date basis, but also applies to a third quarter, where we've seen an increase from four 4%.

Two a 13, 5% in comparison so please bear that in mind, that's a nine 1% increase in operating income percentage point. So I think that's also the context as we can.

You mentioned that you guys are focusing a lot on on.

On unit sales and everything else I think profitability is something not to be disregarded.

Your next question comes from the line of Tristan Thomas Martin from BMO Capital markets. Please go ahead.

James Hardiman: I think we're not providing retail guidance and from a wholesale perspective, I think you've done the math, right? What you should, from a retail perspective, be in mind and we've elaborated on that during the script is that actually more than 50% of the retail decline is attributed to the retirement of the sports. So that has a significant effect and that will continue all the way until the sports is retired out, which is more or less at the end of the second quarter.

Good morning.

I just wanted to circle back to promos for a second during the quarter. I think you are running 399 with zero down and then post the quarter you switched 190 down. So what is the consumer response been to the lower rates and is that kind of the level. We should expect from Marlin moving forward. Thank you.

Thank you for the question Tristan.

Mentioned, we are we have several different potential challenges to consumer behavior.

And different objectives strategically around their inventories and just how we have designed our promotional activity. We have tried an experiment in a couple of different tools to make sure that we are addressing several of those channels. Both at the top and the bottom of the funnel and let me start by saying that many of these promotional.

James Hardiman: And that's in line with our strategy. So bear that in mind when you look at retail and retail declines. Yeah, and I think the only piece that I would add on the, as we think about the business and it's demonstrated in a year-to-date basis is the strengths of what we have seen from a mix in a pricing perspective. So obviously, you know, I know there's often a focus out there in terms of units units and as we look at how we're running the business, we are certainly working to make sure that we're maintaining price advantage wherever we can. That's awful. I'll happen to you back in two. Thanks, guys.

Efforts are also in many ways traffic drivers first and foremost we want to make sure again in an environment, where the consumer is potentially not focusing on a discretionary purchase.

Of the size that we are back in their consideration set so that is one very important.

Even the actual reach our applicability of the promotion we.

We have found that the low APR has been well received by our dealers and by our consumers and also at this time of year, we usually see consumers that are looking for that maybe a little bit higher credit worthiness and are looking for.

Jochen Zeitz: I think you know James has a little bit of additional context when we compare things, right? Often there's a reference made to 2019 and besides the fact that it's a completely different environment with many factors different today versus 2019, including obviously interest rates and consumer sentiment. You know, our HTMC profitability went from 9.1 to 17.4% and 8.3% increase, percentage point increase. So that's substantial and I think is a testament even in this current environment that we're in that the strategy is working and the profitability is there.

A good offer and Thats what were targeting our promotions, but first and foremost our efforts are really around the balance of driving traffic driving awareness, making sure that going back in the consideration that just as much as it is about closing deals.

For the consumer at the level at the dealership.

Okay. Thank you.

Your next question comes from the line of Noah is that skin from Keybanc capital markets. Please go ahead.

Hi, Thanks for taking my question.

Just wondering if you could provide some color or help quantify the impact of the production suspension on three shipments and how you're thinking about the retail impact during the quarter. There do you expect resumption of shipments to be a retail tailwind in the fourth quarter.

Jochen Zeitz: And that's on a year-to-date basis but also by the third quarter where we've seen an increase from 4.4% or I to 13.5% in comparison. So please bear that in mind. That's a 9.1% increase in operating income percentage point. So I think that's also the context as we, as Jonathan mentioned, you guys are focusing a lot on unit sales and everything else. I think profitability is something not to be disregarded.

Okay.

Well if you look at as we mentioned in his speech that.

Shipments.

Have resumed but actually came in later than we had hoped for in the third quarter. So some of our most desirable.

Products came in later in the third quarter and that certainly has had some impact to quantify the impact on retail is quite difficult. So.

Tristan Thomas: Your next question comes from the line of Tristan Thomas Martin from BMO Capital Markets. Please go ahead.

I'll refrain from that but but the interruption has certainly messed up our mix a little bit and the shipment of our most desirable units and that impact we've certainly seen.

Tristan Thomas: Good morning. I just wanted to circle back to Promo's for a second. During the quarter, I think you're running 399 with zero down and then post the quarter you switched to 199 with zero down. What is the consumer response into lower rates and is that kind of the level we should expect from?

Play out now how much you can how much of that you can pick up in the fourth quarter remains to be seen but that's obviously, what we're trying to trying to achieve.

Jochen Zeitz: Thank you for the question Tristan. So as we mentioned, we are, we have several different potential challenges to consumer behavior and different objectives strategically around our inventory, which is how we have designed our promotional activity. We have tried and experimented a couple of different tools to make sure that we are addressing several of those channels both at the top and the bottom of the funnel. And let me start by saying that many of the promotional efforts are also in many ways traffic drivers, first and foremost, we want to make sure again in an environment work, the consumer is potentially not focused on a discretionary purchase of this size that we are back in their consideration set.

Alright, very helpful. Maybe just one more and I know youre not guiding to 2024.

But as it relates to each DFS I guess, how are you thinking about kind of a baseline for expected credit losses next year given higher rates. Thanks.

Yeah, you're welcome. So good question, we're actually not talking about 2024 or 2020 for guidance at this point, we want to make sure that we close out the year and have confidence in what we are communicating further out. So we will probably hold on that I think the important point for US is as we look at what <unk>, what we've displayed again within the <unk>.

<unk> today on what we're seeing in terms of.

Jochen Zeitz: So that is one very important. Even the actual reach or applicability of the promotion. We have found that the low APR has been well received by our dealers and by our consumers. Also at this time of year, you usually see consumers that are looking for that maybe a little bit higher creditworthiness and are looking for really a good offer. And that's where we're targeting our promotion. But first and foremost, our efforts are really around the balance of driving traffic, driving awareness, making sure that we're back in the consideration that just as much as it is about closing deals for the consumer at the level of the dealership.

Realized retail credit losses, certainly those have accelerated we think that we're starting to comp period.

Unknown Executive: Okay, thank you.

A little bit a little bit easier from a comp perspective than where we were in the first half of the year. So the kind of the trend that we're on.

As in the right direction, but probably not the right severity. So that will start to slow down a little bit as we move into the back quarter of the final quarter of the year, but again as we as we look forward to 2024, we're going to save that for a future call with you that's a little bit more informed and a little bit more accurate.

Thank you.

Your next question comes from the line of David S. Macgregor from Longbow Research. Please go ahead.

Noah Zatzkin: Your next question comes from the line of Noah Zatzkin from Quebec Capital Markets. Please go ahead. Hi, thanks for taking my question.

Yes, good morning, everyone.

I wanted to ask about <unk> and <unk>.

Jochen Zeitz: Just wondering if you could provide some color or help quantify the impact of the production suspension on three shipments and how you think about the retail impact during the quarter there. Do you expect resumption of shipments to be a retail talent in the fourth quarter? Well, if you look, as we mentioned in our speech that shipments have resumed, but they actually came in later than we had hoped for in the third quarter.

It seems as though you are still targeting about 600 bikes at the low end of the range, which would imply.

Substantial inflection in shipments here in the fourth quarter.

I guess, how confident are you in that 600 unit.

<unk> targets.

Can you talk about what percentage of these place maybe pre sold at this point.

Jochen Zeitz: So some of our most desirable products came in later in the third quarter and that certainly has had some impact to quantify the impact on retail is quite different. So I'll refrain from that, but the interruption has certainly messed up our mix a little bit and the shipment of our most desirable units and that impact we've certainly seen play out. Now how much you can, how much of that you can pick up in the fourth quarter remains to be seen, but that's obviously what we're trying to achieve.

Have you adjusted your planned price points on the del Mar too.

To account for maybe some of the affordability issues that were discussed earlier in the call and I think importantly, what rates as the operating loss responds to the ramp in unit shipments.

Unknown Executive: Very, very helpful.

Hey, good morning, David Thanks for the question well our level of confidence is where it should be to reaffirm guidance like we have enough demand to fulfill.

This is the guidance in terms of number of units.

We're back in production ramping up right now as we speak so we feel pretty confident that between demand that we have with pre orders along with our capacity available at York that we can fulfill that.

That number.

So thats the first part of the question to say can we speak to the pricing there was communicated earlier.

Jonathan Root: Maybe just one more and I know you're not guiding to 2024, but as it relates to HDFS, I guess how are you thinking about kind of a baseline for expected credit losses next year given higher rates? Thanks. Yes, you're welcome. So good questions. We're actually not talking about 2024 or 2024 guidance at this point. We want to make sure that we close out the year and have confidence in what we are communicating further out.

Okay.

To speak to what rate the operating loss of response to the shipments.

While the operating losses in line with our.

The investments that were planned for the year.

So at this stage, it's exactly the rate that we're supposed to houses.

I guess I'm, just trying to get a subsequent forward looking operating leverage the volume leverage might look like.

Clients was wrong.

Jonathan Root: So we'll probably hold on that. I think the important point for us is as we look at what you've, you know, what we've displayed again within the presentation today on what we're seeing in terms of, you know, realized retail credit losses, certainly those have accelerated. We think that we're starting to comp period that's a little bit a little bit easier from a comp perspective than where we were in the first half of the year.

What I think I will give you the seven to seven responds to it.

Just gave which is we don't comment on 'twenty four 'twenty five in this quarter.

Yes.

Yes.

Your next question comes from the line of Brandon Ross from D. A Davidson. Please go ahead.

Good morning, and thank you for taking my question.

Jonathan Root: So the trend that we're on is in the right direction, but probably not the right severity. So that will start to slow down a little bit as we move into the back quarter or the final quarter of the year. But again, as we look forward to 2024, we're going to save that for a future call with you that's a little bit more informed and a little bit more accurate.

Earlier in the call you touched on the dealer for them you hosted in early October would you be able to touch on a few of the topics you discussed their feedback we received from dealers was overwhelmingly positive.

David Macgregor: Thank you.

Especially around new products, but also some of the initiatives you are taking for 2024.

Thank you Ron and less good to hear.

We thought it was an excellent question as well.

Karim Donnez: Your next question comes from the line of David S. McGrigger from Longbow Research. Please go ahead. Good morning everyone. I wanted to ask about live wire and it seems as though you're still targeting that 600 bikes at the low end of the range, which would imply a pretty substantial inflection and shipment here in the fourth quarter. I guess how confident are you in that 600 unit sort of target? Can you talk about what percentage of these bikes may be pre-sold at this point?

The maintenance active really was around the business planning opportunity with our dealers while uncertainty there was value to all of us being together again.

<unk> sort of H DMC and dealer body. Our main objective is to make sure that we are aligned going into 2024 on what we need to do to make sure that we have a very strong strong year. We believe our network is the health and referenced in his commentary is really a differentiated asset for us in terms of its reach.

Strength its exclusivity so the more that we can align and ensure that we are going to market together on some critical initiatives to better.

Karim Donnez: Have you adjusted your plan price point on the Delmar to account for maybe some of the affordability issues that were discussed earlier in the call? And I think importantly at what rate does the operating loss respond to the ramp of unit shipments? Good morning David, thanks for the question. Well, our level of confidence is where it should be to reaffirm guidance, right? We have enough demand to fulfill the guidance in terms of number of units.

Our main agenda topics, we certainly had a section of this around product, which we don't comment on our future product initiatives, obviously, a very important part of the session with making sure that our dealers were.

Aware of some of the.

As planned for 2024, and they think about their own operation and then we did a more broad set of.

We covered a broad set of topics around business alignment on some of our key initiatives membership and loyalty our apparel business.

Karim Donnez: We're back in production ramping up right now as we speak, so we feel pretty confident that between demand that we have with pre-orders, along with the capacity available at York that we can fulfill that number. So that's the source part of the question. The second, we stick to the pricing that was communicated earlier. Okay, are you able to speak to what rate the operating loss responds to the ramp of unit shipments?

Broader omnichannel initiatives, how we're thinking about profitability and growth.

And again very very heavy discussion a big component of the agenda around ensuring that we are aligned in our go to market.

And in our marketing investments in particular again, leveraging the strength of that network and the investments that they bring to bear and the engagement with consumers.

We felt it was an incredibly valuable session. It was a wonderful opportunity ultimately just energize around.

Karim Donnez: Well, the operating loss is in line with the investments that were planned for the year. So at this stage, it's exactly the rate that we're supposed to have. I guess I'm just trying to get a sense of going forward with what that operating average that volume leverage might look like in the 24-25 as we could as a ramp. Well, I think it will give you the same response to that, just again, which is we don't comment on 24-25 on this call.

It has been in many ways a chat.

<unk>.

It was I think will bear fruit as we go into 2024, and then much more aligned and energized network.

Great. Thank you.

Our next question comes from the line of James Hardiman from Citi. Please go ahead.

Hey, Thanks for taking my follow up so.

Okay.

Back to the sort of the inventory conversation I think I get why inventories would be up versus 'twenty, one and 'twenty two those were pretty depleted levels.

Brandon Roll: Your next question comes from the line of a brand-in rule from DA Davidson. Please go ahead. Good morning. Thank you for taking my question. Earlier in the call, you touched on the dealer form you hosted in early October. Would you be able to touch on a few of the topics you discussed there? Feedback we received from dealers was overwhelmingly positive, especially around new products, but also some of the initiatives you're taking for 2024.

Guess, what I still struggle with here.

Inventories are versus 19, they're down less in retail is right and so the days on hand weeks on hand at least by my math are up.

Fairly meaningfully versus 2019 and Youll.

When you first came in it seemed like the message was pretty loud and clear that you guys thought that inventories were way too high coming out of 2019, So help me sort of.

Brandon Roll: Thank you, Ronan. Let's go to here. We thought it was an excellent session as well. The main objective really was around the business planning opportunity with our dealers. Well, certainly there was value to all of us being together again as a broader sort of HDNC and dealer body. Our main objective was to make sure that we are aligned going into 2024 on what we need to do to make sure that we have a very strong, strong year.

Square those two things.

Brandon Roll: We believe our network of open reference in this commentary is really a differentiated asset for us in terms of its reach, its strength, its exclusivity, so it's the more that we can align and ensure that we are going to market together on some critical initiatives, the better. Our main agenda topics, we certainly had a section of this around product, which we don't comment on our future product initiatives, but obviously a very important part of the session was making sure that our dealers were aware of some of what is planned for 2024, as they think about their own operations.

It feels like so much of the effort in the first couple of years went towards leaning out the channel and as we sit here today, we're sort of.

Brandon Roll: And then we did a more broad set of, we covered a broad set of topics around business alignment and some of our key initiatives, membership and loyalty, or a parallel business, or a broader on the channel initiative, how we're thinking about profitability and growth. And again, very, very heavy discussion of a big component of the agenda around ensuring that we are aligned in our go-to-market and in our marketing investors in particular, again, leveraging the strengths of that network and the investments that they bring to bear in the engagement of consumers.

Worse than we were.

Back then at least on a weeks on hand basis.

Yes.

Comments, he as well versus 2019, but.

Thank you can compare 'twenty, one and 'twenty two to what we're seeing now.

All of the reasons that I've mentioned and.

Early on it's a very different environment demand is more selective.

Production.

Interruption that.

And in order to get the right mix to the dealers, we need to structurally have a higher inventory if demand is more selective on product as well.

And we still end up and I'll hand, it over to Adele here.

<unk> be no to below 2019 levels. So.

And I know that the way Youre doing the math is a little bit different to ours in terms of.

Reach of the inventory, but from everything we've seen and everything we are hearing.

We feel that we're in a good spot here.

Yes.

I think the comparison point into 2019 is important there are as Jeff mentioned.

<unk> mentioned a couple of differences in terms of where we are now more broadly in the business cycle and in 2019. So the first thing that I would say is undoubtedly we have been working throughout the quarter certainly since the production shutdown to make sure that we are adjusting our overall inventory levels and again.

Brandon Roll: So we felt it was an incredibly valuable session. It was a wonderful opportunity also to just energize around what has been, in many ways, a challenging year. So it was, I think, will bear fruit as we go into 2024 and the much more aligned and energize network. Craig Thank you. Our next question comes from the line of James Hardiman from City. Please go ahead. Hey, thanks for taking my follow. So back to sort of the inventory conversation.

It's about the total units, which are still down versus 2019 than it is about the mix of the units in the channel.

That's something that we certainly continue to hold its a very key principle of our overall hard wire strategies to make sure that we have adequate representation, the second element and it really isn't to be.

Under estimated the impact of the delay and the mix of what we were able to produce a particularly in the early part of the quarter against our retail objected. So that is something where we believe many of those units, particularly the CLS.

Brandon Roll: I think I get why inventories would be up versus 21 and 22. Those were pretty depleted levels. But I guess what I still struggle with here. The inventories are versus 19. They're down less than retail is. And so days on hand, weeks on hand, at least by my master up fairly meaningfully versus 2019. And when you first came in, it seemed like a message was pretty lot and clear that you guys thought that inventories were way too high coming out of 2019.

Still even at that have a potential for retail in the year. So that is something to take into account as we look at the full 2023.

That is certainly a factor that we have been working through in the back half of the year.

The third factor I would note and this is again a different price in 2019 and the cadence of the year overall.

We have stopped production of 2023 units as of this week.

We will continue to ship those obviously as they finish up and when we load plant et cetera, and match them to dealer demand, but essentially that is a big distinction versus our business cycle in 2019.

Brandon Roll: So help me sort of square those two things. I mean, it feels like so much of the effort in the first couple of years went towards leaning out the channel. And then as we sit here today, we're sort of worse than we were back then, at least on a week's on hand basis. Yeah, I left a comment here as well versus 2019, but I don't think you can compare 21 and 22 to what we are seeing now.

And shipping units well into Q4.

Oh of course.

We arent deliberately tapering down that production as we get ready for 2024.

And then the final point that I would make and this is something that we have certainly learned this year with the change of our model year to the beginning of the calendar year.

We we intend to be fully ready for 2024 across all of the families, particularly those where we have seen very high demand track with reference early in the conversation and where we have struggled to quite frankly, all year to meet that demand.

Brandon Roll: And for all the reasons that I've mentioned in early on, it's a very different environment demand is more selective. We've had a production interruption that, you know, and in order to get the right mix to the dealers, we need to structurally have a higher inventory if demand is more selective on product as well. And we still end up and I'll end it over to Adele here significantly be known to below 2019 levels.

Finally fashion in a heavily.

And we want to be ready for 2020 call. We wanted to be ready for that ramp up we believe inventory has an important role.

<unk> the beginning of the year and if you look at it through that lens, we are in a meaningfully different position than we were in 2019.

So those are a couple of the different factors that we are weighing and balancing so certainly working through it trying to get the mix right, which is our most important consideration managing the total units obviously important this year given the extra cost for the dealers.

Brandon Roll: So, and I know that the way you're doing the math is a little bit different to ours in terms of reach of the inventory. But from everything we've seen and everything we are hearing, we feel that we're in a good sport here. Yes, James, I think the comparison point to 2019 is important. There are, as you have mentioned, a couple of differences in terms of where we are now more broadly in the business cycle than in 2019.

But ensuring above all that with the different production cadence, we are ready and prepared for the start of the season and are heavily heavily seasonal.

Okay, and if I may.

Can I, just clarify I mean to the mix question.

Brandon Roll: So the first thing that I would say is undoubtedly we have been working throughout the quarter, certainly since the production shutdown to make sure that we are adjusting our overall inventory levels. And again, it's less about the total units, which are still down versus 2019 than it is about the mix of the units in the channel. And that's something that we certainly continue to hold as a very key principle of our overall hardwired strategies to make sure that we have adequate representation.

And the wind down of Sportster so.

The SKU count versus 2019.

It is what it sounds like the SKU count is actually down.

So that should help bring down inventories correct or am I not thinking about that the right way.

Yeah, when I refer to mix I refer to make both within and across family the balance relatively between.

For example, our Softgel family and Archrock family versus what we have within the <unk> family.

Brandon Roll: The second element and it really isn't to be sort of underestimated is the impact of the delay and the mix of what we were able to produce particularly in the early part of the quarter against our retail objective. So that is something where we believe many of those units, particularly the CBOs, are still units that have the potential for retail in the year. So that is something to take into account as we look at the full 2023.

The input.

Alright.

The one that is not.

<unk> has not been exactly what we would've wanted across Q3 and even within something like are touring family, 55% of our portfolio. There is a relative balance out some of our higher end more complex CNS or even a special versus our base worldwide.

Understood.

All of those individual units.

Given supplier disruption and then potentially even the change in consumer preferences and affordability throughout the year.

Brandon Roll: But that is certainly a factor that we have been working through in the back half of the year. The third fact that I would know that this is again a difference versus 2019 in the cadence of the year overall. We have stopped production of 2023 units as of this week. We will continue to ship those, obviously, as they finish off and we load, plan, et cetera, and match them to dealer demand, but essentially that is a big distinction versus our business cycle in 2019.

Our units that we try to correct and and I should note that all of the business in the context of manufacturing realities.

Transforming some of the mix of.

Although manufacturing facility within the year. It is not an easy task. So it is progressing and that's what we have been doing throughout the back half of the year to make sure that we have the right combination of families and then even model within those family to.

Brandon Roll: We would have continued shipping units well into Q4, sort of full force. We are deliberately tapering down that production as we get ready for 2024. And then the final point that I would make and this is something that we have certainly learned this year with the change of our model year to the beginning of the calendar year. We intend to be fully ready for 2024, across all of the families, particularly those where we have seen very high demand, strike with reference early in the conversation, and where we have struggled quite frankly all year to meet that demand in a timely fashion and a heavily seasonal business.

To prepare ourselves and to more closely match where demand is.

Understood.

I appreciate it.

So I appreciate the color thanks, guys.

Thank you.

There are no further questions at this time. This concludes today's conference call. Thank you all for joining and you may now disconnect.

Thank you.

There are no further.

Brandon Roll: And we want to be ready for 2024. We want to be ready for that ramp up. We believe inventory has an important role in supporting the beginning of the year. And if you look at it through that lens, we are in a meaningfully different position than we were in 2019. So those are a couple of the different factors that we are weighing and balancing. So certainly working through it, trying to get the mix right, which is our most important consideration.

Brandon Roll: Managing the total units, obviously important this year, given the extra cost for the dealers, but ensuring above all that with the different production cadence we are ready and prepared for the start of the season in a heavily heavily seasonal business. And if I may, can I just clarify, I mean, to this mixed question in the, in the one down of Forester. So the, the skew count versus 2019 is what it sounds like the skew count is actually down.

Brandon Roll: So that should help bring down inventory's correct or am I not thinking about that the right way. Yeah, when I refer to mix, I refer to mix both within and across families. So the balance relatively between, for example, our softtail family and our trike family versus what we have within the touring family. So some of the input, those, that balance is one that is not exactly or has not been exactly what we would have wanted across Q3 and even within something like a touring family 55% of our portfolio.

Brandon Roll: There is a relative balance of some of our higher end more complex units are as deep and as special versus our base will glide and street glides. All of those individual units, given supply disruption and then potentially even the change in consumer preferences and affordability throughout the year are units that we try to correct. And, and I should note, all of this is in the context of manufacturing realities, transforming sort of the mix of a manufacturing facility within the years is not an easy task.

Brandon Roll: So it is progresses and that's what we have been doing throughout the back half of the year to make sure that we have the right combination of families and then even modeled within those families to prepare ourselves and to more closely match where demand is. Understood, I'm not going to appreciate it. It's not an easy task. So I appreciate the color. Thanks guys. Thank you.

Unknown Executive: There are no further questions at this time.

Unknown Executive: This concludes today's conference call. Thank you all for joining and you may now disconnect. Thank you.

Unknown Executive: There are no further questions.