Q3 2024 LiveWire Group Inc Earnings Call
and the decisions we make to invest in innovation and our core categories that we know our customers and dealers love, where the right ones to both fuse the heart of their culture, and business for years to come. Thank you and our I'll hand over to Komerim.
Komerim: Thanks to everyone, good morning everyone. In truth, we, the market proves to be challenging for elite products, with the world and anticipated adoption, to meet global political and economic uncertainty.
Komerim: In this context, here today, live while you retain more on-world and a quick model cycle in the US and any other brand in the market.
Komerim: Within the 50 plus HP, unworthy disengagement, live where continually the leadership position in the quarter and in 2024 with 69% of the market shares here today.
Komerim: In 23, Library has several other goals exposure exams, including the Belmau being the world's best 2024
Komerim: In addition, this August interred, we enjoyed the global moment for the S2 demo, making live way of household name.
Komerim: Despite retail, outpacing wholesale phones sales consecutive order with the average short of our expectation.
Komerim: As a result, we are revising a foodier guidance to 600 to 1000 motorcycle units, operating last guidance remained unchanged for the foodier.
Komerim: Our focus is on right-sizing the business given the market's environments, delivering the best elite products out there with a unique, nicer look, sound and feel, and preparing for future growth as elite market expense.
Komerim: Looking ahead, we expect to de-regions the manager's fancy and significantly improve our EV motorcycle products cost. With you think cash burned the electricity to 40% next year compared to 2024.
Komerim: As she has already been taken this year in anticipation of 2020, with the completed centralization of all our operations in Milwaukee and the moves to Juneau, Aditya.
Komerim: We also streamed lines of organization leading to an approximately 30% heat cloud reduction heading into 2025 compared to the start of 2024.
Komerim: Recognizing that the performance of existing products are free is directly to enthusiasm. Livewire is also, after me, looking at expanding its more addressable market and increasing overall access to the easy exchange.
Komerim: Today I'm pleased to concern that we are planning to announce a new product segment at Ekma in November that we believe we're doing additional revenue streams to the company in the mid-Jender, while meaningfuly if pending or current address in Denmark.
Komerim: Thank you for watching.
Komerim: Thank you and our family of Goethe-Challenge.
Speaker Change: Thank you Karim, and good morning to all. I plan to start on page 4 of the presentation where I will briefly summarize the consolidated financial results for the third quarter of 2024.
Speaker Change: Consolidated revenue in the third quarter was down 26% driven by HGMC revenue down 32% and parcel offset by HGFS revenue growth of 10%.
Speaker Change: Consolidated operating income in the third quarter was $106 million. Down 49% from the prior year period, given by a decrease of $120 million in HGMC.
Speaker Change: at HGFS, operating income was up $17 million, while the operating loss of the live-wired segment was up by $1 million compared to a year ago.
Speaker Change: The consolidated operating margin in the third quarter was 9.2% which compares to 13.5% in the prior year period, where HGMC operating income margin was down 720 basis points year over year.
Speaker Change: and H-CFS operating margin was improved by 410 basis points.
Speaker Change: I plan to go into further detail on each business segment's profit and loss drivers in the next section.
Speaker Change: Third quarter earnings per share was 91 cents, which is down 34% from $1.38 last year.
Speaker Change: As we hook the page to our year-to-day results, total consolidated HCI revenue of $4.5 billion with down 6% compared to last year.
Speaker Change: The components of this work at HCMC revenue decreased by 9%, at HCFS revenue increased by 11%, and their live revenue declined by 30%.
Speaker Change: Total consolidated HDI operating income was $610 million, which was $199 million lower than the prior year.
Speaker Change: The components of this word at HGMC, operating income $491 million was 30% lower than prior year, reflecting an operating margin of 13.3% in the year today period.
Speaker Change: at HTFS, operating income of $22 million, increased by 14% in the year-to-date period. And their live wire, an operating loss of $83 million, was in line with our expectations.
Speaker Change: Here today earnings per share was $4.27 down 8% and compared to $4.65 in the same period in 2023.
Speaker Change: As you'll consider this introductory comment, in view three, the global consumer has seemingly taken a pause from big ticket consumer discretionary spend based on different dynamics in each region.
Speaker Change: As Jochen mentioned, dealer inventory at the end of Q3 is down by 13% relative to the end of Q2 of this year. As we focus on reducing inventory levels in the second half of 2024, both domestically and internationally.
Speaker Change: We are prioritizing support for our dealers in their attempts to reduce their inventory for the remainder of 24. We expect dealer inventory to be down around 20% from the end of Q320 core levels.
Speaker Change: So that dealers will come into 2025 with inventory at similar levels to the start of 2024.
Speaker Change: We look forward to a healthier 2025 environment where as Jochen mentioned earlier, we are focused on improving profitability throughout the Harley Davidson dealer network and partnering more heavily with our dealers to develop and grow our grassroots marketing activations.
Speaker Change: We continue to prioritize availability and inventory, touring, trite, soft tail and CVL motor cycles. We will talk further about our expectations for the retail and full film loader cycles for the balance of 2024 in just a few minutes.
Speaker Change: i
Speaker Change: Looking at revenue, HDMC revenue decreased by 32% in Q3.
Speaker Change: This was largely a result of the 39% decrease in wholesale units shipped in Q3, where we shipped 27.5,000 motorcycles in Q3 of 24 versus shipping 45.3,000 motorcycles in Q3 of 23.
Speaker Change: focusing on the key drivers for the court from a revenue contribution standpoint.
Speaker Change: 32 points of decline was as a result of decreased wholesale volume at HGMC, where motorcycle shipments down 39 percent in the quarter were meaningfully lower than retail sales of motorcycles.
Speaker Change: One point of growth came from pricing, which includes the net impact of pricing actions on 2024 model year motorcycles and overall failed in finance.
Speaker Change: One point of decline came from mix as we compared to the prior year introduction of all new CBO motorcycles.
Speaker Change: Focus more on touring shipments in the first half of the year, and we round out the rest of the motorcycle portfolio in shipments in the second half of the year.
Speaker Change: and finally, the foreign exchange was largely flat in the third quarter.
Speaker Change: In Q3, HVMC Gross Margin was 30.1% which compares to 31.7% in the prior year.
Speaker Change: The decrease of 160 basis points was driven by the negative impacts from lower volumes and negative operating leverage.
Speaker Change: There were some positives in the court, including favorable net pricing, favorable for an exchange, including hedging, and lower raw material and supply chain management costs as we begin to accelerate our manufacturing supply chain savings, which helps offset the 2% rate of inflation, to be in the court.
Speaker Change: On the operating expense side, expenses were $27 million lower relative to tire a year or 11%. As we continue to maintain overall cost discipline and increase our effort to manage upx productivity and HDMC.
Speaker Change: HPMC operating income was $55 million, which was $120 million lower than prior year due to the significant reduction in wholesale sales.
Speaker Change: HDMC operating margin came in at 6.3% in Q3.
Speaker Change: from 13.5% in the prior year.
Speaker Change: For the year-to-date period, HCMC Grossmargin was 31.3% which compares to 34.2% in the prior years.
Speaker Change: The decrease of 290 basis points was driven by the negative impacts from lower volumes, negative operating leverage, moderate inflation, and less favorable net pricing, which includes overall sales and benefits.
Speaker Change: The impact we're partially offset by the positive impact from favorable motorcycle mix and lower raw material costs and lower supply chain and manufacturing, which I will discuss more deeply in common triggering productivity.
Speaker Change: Lastly, in the first nine months, operating expenses were lower by $13 million or 2%. As we maintain the overall cost discipline, due to actions that we began to take in the late Q2 of this year.
Speaker Change: HMC operating income was $491 million, which was $214 million lower than prior year. HMC operating margin was 13.3% through the first nine months compared to 17.4% in the prior year period.
Speaker Change: Before we turn to the next slide.
Speaker Change: As I didn't July, let me give a brief update on our Productivity Test Program. One of the initiatives identified as part of the hard-wired strategy we are expecting to drive a $400 million improvement in productivity.
Speaker Change: As a reminder, we are now excluding the impact of leverage while holding our previously communicated multi-year target of $400 million.
Speaker Change: Excluding the impact of leverage, we delivered approximately 24 million dollars in 2022 and 123 million dollars in 2023.
Speaker Change: In 2024, we have delivered $84 million through Q3 in this year.
Speaker Change: Turning to slide 10 now in the Financial Service Disagament.
Speaker Change: At Harley Davidson Financial Services, Q3 revenue increased by $26 million or 10% driven by higher retail and commercial finance receivable.
Speaker Change: as well as higher average yields as the portfolio continues to reset over time with changes in friendly interest rates which is currently driving higher interest income.
Speaker Change: HTFS operating income was $77 million. Up $17 million, you're up 29% compared to last year.
Speaker Change: The Q3 increase was driven by higher interest income and lower provision for credit losses, which were partially offset by increased borrower income.
Speaker Change: While operating expenses were largely flat.
Speaker Change: Total Interest Extend was up 10 million dollars for up 12% versus the prior year.
Speaker Change: The increase was driven by a higher cost of funds as lower interest rate debt matured and was replaced with current market rate debt.
Speaker Change: In Q3, HCFS is annualized retail credit law ratio is 3.1% which compares to an annualized retail credit law ratio of 2.7% in Q3 is 2023.
Speaker Change: The increase in credit losses, which are being by several factors relating to the current macroeconomic environment and the related customer and industry dynamics.
Speaker Change: In addition, the retail allowance for Karim Laws is for the third quarter, came in at 5.5% Virtually flat compared to 5.4% at both prior year and and Q2 of 2020.
Speaker Change: This reflects our best estimate of the current and future retail and the environment.
Speaker Change: Total retail loan originations, NQ3, with down 11% while commercial financing activities were up 18% to $1.2 billion.
Speaker Change: Total quarter-end in that financing receivables including both retail loans and commercial financing with $7.8 billion, which was up 2% versus prior year.
Speaker Change: Turning to slide 11 and to hear today results at HDFS, revenue increased by $74 million or 11%.
Speaker Change: HGFS operating income with $22 million of $25 million or up 14% compared to last year.
Speaker Change: The year-to-date increase was driven by higher interest income, which more than offset higher by our own costs, higher pervading for credit losses, and higher operating expenses.
Speaker Change: For the live-wired segment, electric motorcycles revenue increased in the third quarter of 2024 compared to the prior year period due to higher unit sales of ED motorcycles in the quarter.
Speaker Change: and Stasik, the electric balance by business, revenue was down compared to the prior year, which we expected due to a reduction in third-party brand and distributor volumes.
Speaker Change: Selling administrative and engineering expenses were down $2 million or down $6% in 23 compared to prior year.
Speaker Change: Livewire operating loss of $26 million, $1 million more than a year ago, was in line with our expectations as livewire continued to invest in new motorcycle models and also action-d initiatives to reduce the overall cost of sales for EV motorcycles.
Speaker Change: For the year-to-date results at the live-wire segment, revenue is $16 million, down 30% from the prior year, as a result of lower revenue-exphasic.
Speaker Change: For the year-to-date period, live wire sold 374 electric motorcycles, which is a triple-digit increase over the prior year period.
Speaker Change: for the period, live wire after 18 million dollars.
Speaker Change: which was in line with our expectations.
Speaker Change: Repping up with consolidated Harley-Davidson Inc. financial results, we delivered $931 million of operating cash flow.
Speaker Change: in the first nine months of 2024, which was up to $77 million in the same period last year.
Speaker Change: The increase in operating cash flow was influenced by positive changes in working capital as we focus on type inventory management as well as the change in wholesale finance receivables.
Speaker Change: Total cash and cash equivalent ended at $2.2 billion, which was $366 million higher than at the end of Q3 prior year. This consolidated cash number includes $88 million at LiveWire.
Speaker Change: Additionally, as part of our capital allocation strategy and in line with our commitment to return capital to our shareholders, in Q3 we've got back 4 million shares of our stock at a cost of $150 million.
Speaker Change: This brings our total amount of shares bought back in the nine months of 2024 to 9.5 million shares of Harley-Davidson common stock at a total value of $350 million, which is 7% of shares outstanding at the beginning of 2024.
Speaker Change: This compares to 6.1 million shares at a cost of $226 million in the first nine months of 2023.
Speaker Change: Given the lower than expected retail demand, we experience in the first nine months of the year, which we expect to continue into Q4. We are revising our full year 2020 Flauer Outlook.
Speaker Change: At HPMC, we continue to expect the Retail Unit SOLD and O'Fill Unit Shipments will be broadly balanced by the end of 2024 and we now expect retail and wholesale to be in the range of 149,253,000 units.
Speaker Change: which is a change from 163,168,000 units at Q2 earnings.
Speaker Change: We expect a retail to be in the range of down 68% for the full year, which is a change from flat to up 3% for the whole year.
Speaker Change: and we expect wholesale shipments to be in the range of down 16 to 17 percent for the full year, which is a change from down 7 to 10 percent for the full year.
Speaker Change: These lower revised top line inputs, results in a change to our full year HDNC revenue and HDNC operating in Comparatives.
Speaker Change: We now expect revenue to be down in the range of 14 to 16 percent for the full year, which is a change from down 5 to 9 percent for the full year at Q2 learnings.
Speaker Change: We now expect operating income margin to come in between 7 and 1.5 and 8.5% for the whole year, which is a change from 10.6 to 11.6% range for the whole year that we had previously guided to.
Speaker Change: The downward revision is due to production and wholesale reductions and the resulting impact of leverage.
Speaker Change: We believe these reactions are positioned to come up any more appropriately for 2025.
Speaker Change: at HGFS, guidance for the full year of 2024 is revised upward, where we now expect operating income to be up 5 to 10 percent for the full year.
Speaker Change: which is a change from flat to up 5% for the full year at Q2 Learning.
Speaker Change: at LiveWire, guidance for full year 2024 is revised. We now expect deliver between 600 and 1000 electric motorcycle units. While operating loss in the range of 15 million dollars is unchanged.
Speaker Change: and we continue to expect capital investment in the range of $225 to $250 million, which is unchanged.
Speaker Change: As a reminder, our capital allocation priorities remain to fund profitable growth of the hardwire initiatives, which includes the capital expenditure.
Speaker Change: Paying dividends and continuing to execute discretionary share reproductions as outlined in the previous quarter.
Speaker Change: We field a tie-lights tower operating discipline, overall cash flow generation, and the long-term earnings power. And it's supported by our continued commitment to deliver a 15% HGMC operating income margin by the end of 2025.
Speaker Change: and with that we will open it up to Q&A.
Speaker Change: i
Speaker Change: Thank you. As a reminder to ask a question, please press star one on your telephone keypad. To withdraw your question, press the pound key. We also ask that you limit yourself to one question and return to the queue for additional questions. Thank you.
Speaker Change: Your first question comes from Craig Kennethon with Beard. Please go ahead.
Craig Kennethon: Hey, good morning. Thanks for taking my question. Jochen, I'm wondering if you could share any themes.
Speaker Change: that may have come up through your recent dealer conversations and what your message is to dealers. It feels like that has changed a little bit.
Speaker Change: Yes, thanks, break.
Speaker Change: Obviously, an understandably dealer-prophet abilities from the mind.
Speaker Change: And as you've seen this, we get the tough time for the industry as much as it is for any discretionary business, whether you are in the marine business, or motorcycle.
Speaker Change: We held as you mentioned our annual dealer formula of Toba.
Speaker Change: and it was a really good barometer opportunity to engage with our dealers, obviously, in the many interactions that we have throughout the year with our leadership team.
Speaker Change: And at the forum we presented the way in which we as a motor company are going to support the network in 25 and I think the outcome is probably what.
Speaker Change: The last came away feeling, put about what is in store for us collect. Hi.
Speaker Change: An overwhelmingly rated the outcomes and the success of a forum with almost 75% rating it is very good to exceptional.
Speaker Change: That's a good indication of an...
Speaker Change: The network, given the very difficult environment that we aim with dealer profitability, obviously Edel, ever that we don't want to see going forward. So the measures we put.
Speaker Change: and new product line up for the next year and particularly the co-marketing investments that we're going to make in addition to other internal measures that we've.
Speaker Change: Forum.
Speaker Change: will up next year in strong force. I mentioned earlier, there's a lot of strength in the thing that brand network and we are proud to have us put network in the industry and want to make sure that the continues are possible network as well and we're working hard.
Speaker Change: and that said I would say other networks are probably more challenged for a network risk.
Speaker Change: but we will certainly continue to work very hard.
Speaker Change: El Cdarnet working in terms of profitability.
Speaker Change: Our next question comes from Megan Alexander with Morgan Stanley.
Megan Alexander: Hi, good morning, thanks for taking our question.
Megan Alexander: I wanted to ask a couple of questions if that's okay on retail. The down 13% in 3Q, obviously I think there was some well telegraphed noise, particularly perhaps in August. I think you talked about maybe July off to it.
Megan Alexander: In okay start last quarter, so first can you just talk about maybe the trend of retail over the third quarter.
Megan Alexander: How you exited the third quarter and then how that informed your outlook for 4Q. Obviously a wide range for the fourth quarter seems to be implied.
Megan Alexander: looks relatively similar, I guess, to what you reported in three cue. So maybe you can just kind of help us understand the puts and takes around that.
Speaker Change: So few three started out with a strong July and we ended week yet and expect, especially in late September, which we think is pretty much in line with what we've heard from Moist.
Speaker Change: and Power Sports competitors and industries as a whole and not just worse but worse the globe.
Speaker Change: So we believe and we assume that the greater marker in geopolitical uncertainty expected would change its interest rates, especially in North America and in India, as well as the upcoming US elections, and whether it's events in the US.
Speaker Change: Indocity.
Speaker Change: Our next question comes from James Hardeman with City.
James Hardeman: Hey, good morning. Thanks for taking my questions.
James Hardeman: It sounds like the general outlook here for 24 assumes.
James Hardeman: Retail and line with wholesale. I guess in light of the retail weakness, why do you think that's still the right?
James Hardeman: the right target at this point? And I guess, you know, the bigger question is, as we think about 2025, what's your level of confidence that you won't have to destock even more as we look to next year?
James Hardeman: Thank you. Bye-bye.
James Hardeman: Sure. Hi, James. This is Jonathan. Happy to start out and take this one.
Speaker Change: It sounds like your questions are really primarily around
Speaker Change: Dealer inventory, the how that relates to retail. So I think a good question in there. Dealer inventory at the end of Q3 is down by about 13% relative to the end of Q2.
Speaker Change: We will continue to focus on continuing to reduce dealer inventory levels in the final quarter of 2024. So as we look at that, the question that obviously you probably ask is, where will you be? Well, we aim to be down about another 20 percent.
Speaker Change: from today's levels, which gets us to about the same levels as the end of last year.
Speaker Change: Certainly, from our standpoint, we continue to prioritize availability, inventory of Touring, Trike, Softail, and CBO motorcycles.
Speaker Change: We look at our core categories, and we know that our core categories are key to the hardwired strategy.
Speaker Change: They're key to the share growth that we've seen within the industry. So we want to make sure that our dealers are appropriately positioned to keep that going.
Speaker Change: And then, again, as you referenced, you do have our commitment that
Speaker Change: that we really are by the end of the year, ensuring that we're doing all that we can to get retail and wholesale to move in alignment, which is something that we've talked about since the beginning of the year as part of our 2024 guidance. So hope that helps.
Speaker Change: Well, I don't know if I have time for a follow-up here, but I guess my question is, why is that?
Speaker Change: the right level, right? Flat inventories for a year in which retail is going to be down mid-single digits. Normally, in that sort of environment, we would assume that inventories would need to come down even further, right, versus at the start of the year to keep those inventory turns.
Speaker Change: flat. And so does this create an incremental
Speaker Change: potential overhang as we think about reductions for next year.
Speaker Change: Thanks. I don't know if you can hear me better. I seem to have had some issues with the line here. We don't think so and we believe that we will be...
Speaker Change: will address that in the right way. So we feel confident that this is the right thing to do and pretty significant adjustment throughout the year.
Speaker Change: Got it. Thank you.
Speaker Change: Our next question comes from Joseph Altabello with Raymond James.
Joseph Altabello: Thanks. Hey, good morning. Just to follow up on James' question, so if I have my math right, you ended 2023 with 49,000 bikes in the channel, and you were anticipating retail this year of 163,000 to 178,000 bikes.
Joseph Altabello: Now you're saying you're going to end the fish year.
Joseph Altabello: At 49,000 bikes in the channel flat yearly year, and I can't imagine you're anticipating
Joseph Altabello: that same retail level next year. So how do we square those two numbers?
Joseph Altabello: David MacGregor, David MacGregor, David MacGregor, David MacGregor
Speaker Change: All right, thanks Joe so as
Speaker Change: We probably don't wanna get too much into 2025 at this point. So I don't think, we certainly feel like this probably isn't the right time to be giving full 25 guidance on where we're going. But overall, as we think about...
Speaker Change: what we've laid out and where we're going. We obviously expect that we're gonna be in the range of 150 to 153,000 retail units and the same from an overall wholesale unit perspective.
Speaker Change: So moving those to an alignment, and we think positioning our dealers pretty well for where we're ending the year, and then where we're beginning Q1 of 2025.
Speaker Change: And, you know, again, we don't want to get too far into 2025, but as we as we do move, move into that period, you probably will see some adjustments in terms of the way that we end up distributing throughout the quarters.
Speaker Change: in 2025 that we'll make sure that we are covering in more detail with next quarter's earnings.
Speaker Change: Okay, that's helpful. Maybe just a follow-up. You mentioned the cadence of retail in the quarter. Any pickup in October post the Fed's rate cut?
Speaker Change: Yeah well as we said previously we are you know going to be prudent and as an overall best practice I'm not going to comment on the running quarter in that case on October retail until we release Q3 and we will continue with this practice in the future.
Speaker Change: Just coming back to your inventory question, I think what you should bear in mind is that the big change in Turing...
Speaker Change: Obviously, it's not going to happen again. We have fantastic touring bikes in the market, and we'll carry them over into the new year.
Speaker Change: So bear that in mind in terms of the quality of the inventory that we're carrying over rather than having an old platform that gets carried into the new year. We have the new platform carrying into the new year. So the quality of the touring inventory is a lot better than it was previous year. So as a qualifying factor as well to bear in mind.
Speaker Change: Okay, super. Thank you.
Speaker Change: Our next question comes from Robin Farley with UBS.
Robin Farley: Obviously, it's a challenging environment for electric vehicle sales. Broadly, I guess just thinking about your commitment to that business long-term.
Robin Farley: Is there a point at which, if it doesn't meet your expectations for another year, you know, when we think about your sort of multi-year plan, a point at which you would re-evaluate?
Robin Farley: you know how long it might take to be profitable there and kind of how long you'd be willing to.
Robin Farley: have those additional losses. I guess just trying to get a sense of, you know, if you didn't hit these targets, are you fine with sort of similar losses to this year and for how long? Just thinking about it like that. Thank you.
Speaker Change: Yeah, thanks, Robin. I think in terms of 25 expectations, there's not much more I can add other than reemphasize that.
Speaker Change: We're really working very hard to set ourselves up for a solid 25 and we are positive in our ability to make sound progress in the new year and I'll call that cautiously optimistic.
Speaker Change: We have to be mindful that external factors, including interest rate reductions and improved consumer confidence, are required to provide the industry with a needed tailwind, a tailwind that we've not had for a couple of years now.
Speaker Change: Our focus in addition, of course, is to continue our cost control measures, our cost productivity gains. Jonathan highlighted them. And we expect to achieve our goal of productivity gains in total of 400 million dollars.
Speaker Change: combined with a tight capital allocation. And we continue to believe that we have the right strategy, especially compared to others in the market and that the decisions we've made early on in 2020 and 2021 to invest in innovation and in our core categories.
Speaker Change: that we know, you know, our customers, our dealer favor, have been the right decision. So I think that's as much color as I can give 425.
Speaker Change: Our cash burn is significantly going into next year. He mentioned that we are taking the cash burn down by 40% next year. The operating costs are coming down. We are working, the team is working very hard to improve.
Speaker Change: The actions have been taken, and Karim, if you want to repeat them, please do. But we do believe at this point in time, given what we know, that it is important to continue to invest, but very prudently for sure.
Speaker Change: in comparison to when we started this venture and the EV adoption was a very different one certainly in auto and also in other spaces.
Speaker Change: we believe that it is important to position us and LiveWire as the leader in electrification of the sport, to ensure that Harley-Davidson at the appropriate time has access to this technology, whenever that might be. But of course we take one year at a time and see how business develops. For now these are the actions that we are taking.
Speaker Change: Okay, great. Thank you.
Speaker Change: Our next question comes from Fred Whiteman with Wolf Research.
Fred Whiteman: Hey guys, good morning. Jonathan, I think you made a comment to sort of reaffirming that 15% operating margin target for 2025. I'm wondering if you could just help us think about the big sort of building blocks from this year's operating margin performance. I know that there's a lot of
Fred Whiteman: D-leverage from the lower volumes, but if you could just sort of help us think about the chunky pieces to get to that mid-teens target, that'd be helpful, thanks.
Fred Whiteman: Thanks for the full year 2026.
Fred Whiteman: four walls of Harley and how that really drives an improvement.
Speaker Change: This year certainly is unusual in in terms of how much we're taking down shipments in the second half of the year.
Speaker Change: We also have some, you know, I think we've talked about this a little bit, probably more this year than we ever thought that we would in terms of some of the differences between production and wholesale.
Speaker Change: And so, as we move forward into 2025 and 2026,
Speaker Change: We begin to line up.
Speaker Change: The relationship between production, wholesale, and retail.
Speaker Change: So with that, you obviously see some of the benefits that we enjoy from a leverage standpoint.
Speaker Change: So there's a pretty meaningful impact from that standpoint, cost productivity for us.
Speaker Change: dependent upon units. So you stack those two in order to see improvement. And then in addition, as we have portfolio changes and product changes and tweaks, there are some things that we think we can do pretty surgically from a pricing standpoint. So that helps.
Speaker Change: And then the other piece that I would just touch on is, you know, we have pretty strong operating discipline around OPEX.
Speaker Change: And you actually see that really show up in this quarter. So with some of the actions that we took last quarter, that you end up kind of seeing hitting the P&L in a positive way within this quarter.
Speaker Change: You see OPEX down $27 million, for example, in Q3, so down 11% due to the actions that we took. So I think if you look across the P&L, there are a number of contributing factors that give us confidence in that 15% OI margin target.
Speaker Change: Thank you.
Speaker Change: Okay, thanks. And then there were a couple mentions about dealer support. I'm wondering, when you say that, are you just talking about the cut to shipments helping dealers out or is there actually a different mechanism for that?
Speaker Change: Well, there are many measures that we have taken to set our dealers up for a successful 25.
Speaker Change: and in my speech I mentioned the significant marketing investment as a marketing development fund that will benefit the dealers on the ground as they execute in 2025.
Speaker Change: and there are many other initiatives that we are...
Speaker Change: All that we have presented to our network, including, you know, retail targets for next year that are achievable from our perspective adjustments to how we digitally drive more traffic and leads to our network.
Speaker Change: how we see the evolution of our fuel facility upgrades evolving over the next couple of years. So there was a number of activities that are not just...
Speaker Change: based around inventory reduction, which of course is critical.
Speaker Change: as well, especially going into next year. We feel that, you know, with rates coming down and all the other activities that we've announced, the dealer network should be able to see a strong improvement in overall profitability in 2025.
Speaker Change: in addition, of course, to the product that we've launched at the same time as well.
Speaker Change: Great, thanks
Speaker Change: Our next question comes from Alex Perry with Bank of America.
Speaker Change: Thank you.
Alex Perry: Hi, thanks for taking my questions here. I just wanted to ask how we should be thinking about, you know, HDMC gross margins in the fourth quarter. Will you be, you know, leveraging promos to work down dealer inventory? And then a little bit of the follow-up from the last quarter. Any help on sort of how we should be thinking about gross margins?
Alex Perry: for next year, especially given some of the production shifts that you've announced and taking some increased, you know, costs out of the business. Thanks.
Speaker Change: Let me start briefly on promos, you know right now. We are offering select promotional support mainly however in the way of interest rate assistance
Speaker Change: and Jonathan can, you know, highlight some of the problems we're having in market right now.
Speaker Change: We have a pretty sizable reduction in the wholesale shipments. So obviously we've provided you with where we think retail and wholesale are going to range. And you can see from that that it's a pretty sizable cut in shipments.
Speaker Change: As we go through and we take a look at answering the question around promos,
Speaker Change: What we have seen is that from a consumer perspective, we feel like our consumers are more responsive to rate promo than anything else.
Speaker Change: So we'll continue with, you know, some form of that, perhaps.
Speaker Change: as we look at the balance of the year to make sure that we are, again, supporting our dealers at retail. We feel like it's critical to ensure that we're giving them campaigns that allow them to drive consumer traffic.
Speaker Change: Thank you.
Speaker Change: Perfect. Very helpful. Best of luck going forward.
Speaker Change: Our next question comes from Noah Zatzkin with KeyBank.
Noah Zatzkin: Hi, thanks for taking my question.
Noah Zatzkin: I guess first, just on Livewire, not to put too fine a point on it,
Noah Zatzkin: But I think you made the comment that you're kind of working to stem cash burn by 40% next year. Is it fair to assume that that translates directly to operating expenses, you know, meaning just trying to figure out if there's a potential for $40 to $50 million kind of less loss from live water next year?
Speaker Change: Sure, so I can start and then Karim can jump in. So I think Karim is very, very focused on how he's managing the LiveWire business.
Speaker Change: pretty pretty tightly. There's a little bit of a difference between
Speaker Change: See from a cash perspective and where you end up seeing their operating income as obviously there's depreciation and some compensation related elements
Speaker Change: that side of the equation. Karim, I'll hand it over to you for the
Karim Laws: for the, to paint a little color on some of that.
Speaker Change: But I think, Noah, the critical thing is that Cash Burn represents one part of their P&L. In addition, they do have some depreciation that they work through, as well as some compensation related elements. But with that, Karim?
Karim Laws: Yeah. Thanks, Noah.
Karim Laws: As Jochen has explained, yes, the cash burn obviously has a direct impact in the operating loss performance from next year, so we do expect a significant reduction in operating loss as well next year. Having said this, we've taken most of the actions already to be set up for a significant reduction next year. We've relocated entirely the lab from California to Milwaukee. We don't have anything left in California at this point.
Karim Laws: obviously was a fairly expensive place to operate from.
Karim Laws: And we've reduced our overall workforce by 30% compared to the beginning of the year. Everything is done now. We've streamlined our...
Karim Laws: organization in a way that we still keep a key focus on innovation and make sure that we can continue working on introducing products that are fit for market.
Karim Laws: One of them will be announced in 10 days at ECMA. And again, we believe that those products will significantly expand the horizon for live wire. So we recognize the tough EV environment we're under right now, but it is not true for all segments.
Karim Laws: good traction in the market, especially in Europe. So more to come on this one, but the overall library of business right now is already set up for 25 to have a very significant reduction in cash burden operating loss compared to the 2024 performance.
Speaker Change: Thank you. If I could just squeeze maybe one more in on HDFS. I guess first how you feeling about the health of the book and then obviously nice performance this quarter. How are you thinking about kind of the interplay between expected recuts and the ability to drive growth there next year? Thanks.
Speaker Change: Great, great question, Noah. So we'll, we'll start with this year and then and then move into.
Speaker Change: A quick question on next year. So, as we look at what we're seeing from a 2024 perspective, consumer certainly is a little bit stressed. The HDFS team
Speaker Change: is doing a wonderful job of managing losses, managing the consumer and ensuring that they stay sort of on track, which I think you see with a fairly limited change in our reserve. We were virtually flat in reserve versus prior quarter and prior year. So the outlook I think from a
Speaker Change: consumer health standpoint is pretty good. That's what allows us to increase our outlook on the HDFS business for the year.
Speaker Change: As we move into 2025, as we've talked about, we're probably not ready to guide in detail on 2025 yet.
Speaker Change: We're actually working through budget and things of that nature, so I'm speaking a little bit off the cuff.
Speaker Change: We're in a place where I think we will end up seeing a little bit of the debt portfolio resetting before we have an equivalent reset.
Speaker Change: in the retail portfolio. So things have moved in a really nice direction.
Speaker Change: for 2024. I think we get a little bit of a challenging 2025 in front of us.
Speaker Change: before we move forward into subsequent years. But more to come on that front, but I don't expect that 2025 for HDFS will look as strong as 2024.
Speaker Change: Thank you.
Speaker Change: Our next question comes from David McGregor with Longbow Research.
David McGregor: Good morning. Thanks for taking the questions.
David McGregor: about just disruptive weather? And then secondly, I'd love to get your sense, and I realize it's still a bit early to be talking about 2025. But how are you thinking about motor company market share in 2025?
David McGregor: Thanks.
Speaker Change: David, weather has certainly led to a
Speaker Change: A tougher retail environment, especially towards the end of September.
Speaker Change: That's when also Helene hit on the east coast and we saw some impact.
Speaker Change: immediately thereafter, so that...
Speaker Change: certainly has been an impact in the US, not so much internationally, but certainly in the US.
Speaker Change: And then the market share.
Speaker Change: Well, we're not going to really comment much more on 25 at this point in time. We feel we have a strong product lineup for next year in Turing to continue.
Speaker Change: Our CVO segment, as I mentioned earlier, has been doing particularly strong. We've seen double-digit growth throughout the quarters in our strong CVO touring offering, including a CVO that we've offered in the venture touring market.
Speaker Change: We have a good lineup for next year, but beyond that, I think we'll have to wait until February before we can give some indication. We certainly believe that we are well-positioned to defend market share.
Speaker Change: maybe gain in some segments, but we shall see. And of course, that's also impacted by the overall environment. As you've seen, we've taken market share in Turing and have been most quarters up.
Speaker Change: Additional actions we are taking together with our dealer network to make sure that they are ready for it and we generate leads and traffic to the dealer network.
Speaker Change: Thanks very much.
Speaker Change: Our next question comes from Tristan Thomas-Martin with BMO Capital Markets.
Tristan Thomas-Martin: Hey, good morning. I have a question about your broader product portfolio. Like you pointed out, you got a lot of success with the updated touring. I was just wondering, given some of the headwinds for like the big ticket items, just kind of general consumer affordability concerns, is there any thoughts maybe revisiting some more affordable bikes? Thanks.
Speaker Change: Could you repeat the revisit watch? I'm sorry.
Speaker Change: more affordable bikes.
Speaker Change: for things maybe under $10,000,000, for example.
Speaker Change: Yeah.
Speaker Change: We're not going to talk about pricing of our entry-level product next year, but rest assured we are addressing that, in particular with our RevMax products going into 2025. But with that said, we need to wait until the new year, until the price lists are out.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our final question comes from Jamie Katz with Morningstar.
Speaker Change: total touring cruiser has not increased 4%. So what exactly have you gained market share in?
Speaker Change: Well, we've gained market share primarily in the touring segment, which was the primary focus of our new product lineup this year.
Speaker Change: throughout every quarter we've outperformed the industry significantly in terms of market share.
Speaker Change: Our retail sales were down less than the overall industry. So even in the big context, in the overall context, we've...
Speaker Change: improved market share slightly. But that then considers all the segments. But from a touring perspective, in every quarter, we've been doing significantly better than the market.
Speaker Change: Intuit.
Speaker Change: Yeah, I understand that it's just on the slides. It doesn't indicate that it just indicates You know 73% market share this quarter and 73 last quarter. The other question I have is on
Speaker Change: Reassessing the structural operating profile of the business. It's been quite a while since there's been a big change, but it's clear that the level of shipments is significantly different.
Speaker Change: then maybe it would have been a decade ago.
Speaker Change: What sort of trigger would you look for to think about whether or not maybe your capacity or labor utilization or manufacturing footprint should really be re-evaluated on a much higher level? Thanks.
Speaker Change: Well, rest assured that we are looking at that constantly and as we're in the process of, you know, putting our budget together, this is a key consideration, of course.
Speaker Change: which is why we've emphasized so much that OPEX and cost productivity are key driver and we're going to make sure that we are basing those operations on a conservative outlook going forward.
Speaker Change: So that will be the case. We have made adjustments to our OPEX base already.
Speaker Change: over the last 18 months, and we will continue to do so with an anticipated market environment that, you know, has certainly been challenged this year, no question about it.
Speaker Change: highlighted that with the cost productivity measures that we are taking and a tight OPEX structure going into next year, we will see the improvement that we want to see in order to achieve our Hardwired Stage 2 goals.
Speaker Change: in terms of operating margin.
Speaker Change: And Jamie, I would just add that, you know, obviously we remain very, very committed to delivering the $400 million in cost productivity. And that certainly doesn't come without a great deal of work on the side of things.
Speaker Change: You know, relative to ensuring that we have everything optimized from a manufacturing perspective.
Speaker Change: So, we appreciate the relationship that we have with our unions. We think that they have displayed, you know, a level of flexibility and support that we certainly are appreciative of.
Speaker Change: And I think together we've partnered to drive something that we feel is very sustainable in the future and again You know you have our strong commitment to delivering the 400 million dollars that we've been talking about
Speaker Change: Thanks for the color
Speaker Change: There are no further questions at this time. This concludes today's conference call. Thank you all for joining. You may now disconnect.