Q1 2025 LiveWire Group Inc Earnings Call
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Speaker Change: Thank you for standing by and welcome to the Harley Davidson and 325 first quarter Investor and Analyst Conference call. Please be advised that today's conference is being recorded.
Speaker Change: Now like to hand, the conference over to Shawn Collins. Thank you. Please go ahead.
Shawn Collins: Thank you. Good morning. This is Shawn Collins, the director of Investor Relations at Harley Davidson.
Speaker Change: You can access the slides supporting today's call on the Internet at the half.
Speaker Change: These statements.
Speaker Change: Stimulations website.
Speaker Change: As you might expect our comments today will include forward looking statements and are subject to risks that could cause actual results to be materially different those.
Speaker Change: Risks include among others.
Speaker Change: Matters, we have noted in today's earnings release.
Speaker Change: In our latest filings with the SEC.
Speaker Change: Joining me for this morning's call are.
Speaker Change: Are they Davidson Chief Executive Officer European sites also Chief Financial Officer, and President of commercial Jonathan Group.
Speaker Change: And we have LIBOR Ayers, Chief Executive officer of Creme de net available for questions.
Speaker Change: With that let me turn it over to our CEO European sites.
Speaker Change: Over to you.
Speaker Change: Thank you Sean good morning, everyone and thank you for joining today's call.
Speaker Change: HDI operating income margin for the quarter came in at 12, 1%.
Speaker Change: In line performance was better than expected driven by strong product mix tight cost control and logistics supply chain and in our operating expenses as we lap significant spend related to our model year 2014 launch.
Speaker Change: Global retail sales were down 21% in Q1 and down 24% in North America softer than we expected primarily in the U S market driven.
Speaker Change: Driven by historically low levels of consumer confidence in the uncertain macro environment.
Speaker Change: With the decision to rollout our model year 'twenty five campaign later in the year in the U S to be closer to the riding season.
Speaker Change: The majority of our marketing development funding being allocated into Q2 and beyond to support the network well into and beyond the riding season.
Speaker Change: The marketing development fund is the most significant co marketing investment made in the company's history. While we believe this investment will be most effective in the current environment closest to the sale with our dealers.
Speaker Change: Outside of North America, EMEA experienced a quarter with overall retail being down just 2%.
Speaker Change: The APAC region experienced a 28% retail declined driven by softness primarily in China and Japan.
Speaker Change: And lastly, Latam, so a 6% decline year over year in retail.
Speaker Change: As we move forward through this macro uncertainty we remain committed to managing wholesale shipments in order to maintain reduced levels of dealer inventory.
Speaker Change: At the end of Q1 global wholesale shipments were down 33% and dealer inventory was down 19% as compared to the end of Q1 last year.
Speaker Change: With U S inventory being down 23%.
Speaker Change: Turning to <unk>, our financial services business delivered a better than expected result, with an increase of 19% and operating income for the quarter.
Speaker Change: Jonathan will provide some additional details on how we believe there are opportunities to further leverage the strength of hff's to benefit our customers dealers and shareholders alike.
Speaker Change: Looking to products. In addition to our 25 multi year launch that we detailed at the last quarterly call Harley Davidson Champions on road performance is a key differentiator for the brand.
Speaker Change: Clean power customers desire to take inspiration from the trek onto the street.
Speaker Change: As we continue to look to raising for inspiration in early March we launched a new limited production Harley Davidson the CBO Road glide.
Speaker Change: Setting a new benchmark for street, leading performance Vega, it's the most powerful and dynamic on road production motorcycle ever offered in the company's 122 year history.
Speaker Change: Leveraging knowledge and components developed by the Harley Davidson factory racing team competing in the King of the biggest series the CBO Road glide, our combined exceptional performance with attention to cost in detail.
Speaker Change: Hallmark of Harley Davidson CBO limited production motorcycles.
Speaker Change: Production of the model will be limited to 131 hand assembled serialized motorcycles available through select authorized Harley Davidson dealers in the United States. This year.
Speaker Change: We've seen an outstanding response to this launch across the network and we do expect these to sell out from preorder.
Speaker Change: Last quarter, we teach the next installment of entry level product something that we're very excited about having been several years in development.
Speaker Change: Since <unk> 'twenty, one strategic pillar of our hardware strategy has been selective expansion and redefinition.
Speaker Change: Expanding our crews the offering into smaller displacements, including a true entry level cruise and it's been a focus in our clients.
Speaker Change: I'm pleased to confirm that we are planning to introduce a new entry level products.
Speaker Change: Our displacements as well as the introduction of an iconic classic for the U S and international markets starting next year.
Speaker Change: We expect these products will be highly affordable and profitable addition store portfolio informative to the companys future growth.
Speaker Change: Turning to live wire.
Speaker Change: As already highlighted in February the headwinds facing the broader power sports and discretionary leisure industry up even more complicated in the EV segment of the market.
Speaker Change: All signs are pointing to much later EV adoption than originally anticipated.
Speaker Change: Given the lack of incentives and a notably less favorable regulatory environment combined with a slower expansion of charging infrastructure.
Speaker Change: In that context, Harley Davidson evaluating all options for its investment in <unk>.
Speaker Change: Why are we will continue evaluating all options for its business, including seeking external capital if and when needed.
Speaker Change: In addition, LIFO tends to continue to drive additional significant cost savings to reduce cash burn and operating losses with the intention to get to a sustainable business model with the existing funds available.
Speaker Change: Harley Davidson does not plan to provide additional investments into LIBOR beyond the line of credit agreement entered into Q1, 'twenty four of up to $100 million.
Speaker Change: With increased focus on cost and cash flow Lifewire now expect operating losses of approximately $59 million and a cash burn of $49 million versus previous operating loss guidance of $70 million to $80 million for the full year.
Speaker Change: Turning back to Harley Davidson with a level of uncertainty we are seeing in the number of changes happening on an ongoing basis and global tariff and trade it's difficult to predict what policies may impact customers over the course of the year and how consumer confidence will affect discretionary product purchases.
Speaker Change: We therefore are withdrawing our previous 2025 guidance until there is more clarity on the global economy and tariff landscape.
Speaker Change: While the tariff environment remains fluid our continued engagement with various administrations leads us to be cautiously optimistic that there will be trade deals that will at least limit the overall tariff impact on the company and its operations.
Speaker Change: That said our teams are working extremely hard to mitigate the impacts from 25, given the fluid tariff environment. While we are also focused on mitigation strategies to minimize potential longer term impacts to the company.
Speaker Change: And with that I'll hand, it over to Jonathan.
Jonathan: Thank you and good morning to all and my role as President of commercial I would like to expand on <unk> comments regarding the continued development of a very robust product portfolio.
Jonathan: In addition to a new small displacement motorcycle and the introduction of an iconic classic crews over starting next year. We also plan to introduce more innovation in our touring and trike motorcycles platforms. All reflections of the execution of the hard wire strategy for future years.
Jonathan: That said it is important to note that our new touring motorcycles introduced in the last 18 months are a very important factor in differentiating old or new in look sound feel and performance and the new large cruisers are delivering excitement capability and performance refreshes.
Jonathan: Up this year.
Jonathan: Additionally, based on much feedback.
Jonathan: We will begin to shift the model year timing to the fall to create additional selling opportunities later in the year.
Jonathan: In order to support dealer health in these challenging times. We have also made changes in our fuel facility program through revised requirements and financial incentives.
Jonathan: Of the 594 global dealers identified as requiring a fuel upgrade.
Jonathan: 35% have either been completed or are in process at this point, which is on track with our original 10 year time horizon.
Speaker Change: We have also refined our flexible rewards program to improve its sustainability and attractiveness and as you heard from Johan we introduced the marketing development funds to put dollars, where we believe they have the most effective result.
Speaker Change: Before I get into the financial results I would also like to touch on some speculation in the press surrounding Harley Davidson financial services and its strategic direction.
Speaker Change: As part of the hardware, we are pursuing value enhancing opportunities for all stakeholders, including customers dealers lenders debt holders and shareholders with that in mind. We can confirm today that we are evaluating an investment into <unk>. If the following transaction objectives are met.
Speaker Change: First any arrangement would demonstrate the class leading returns of H DFS is a driver of value for <unk> shareholders by proving out a significant premium valuation versus book value. This is all made possible as H DFS is the highest returning transportation related captive finance company in America.
Speaker Change: Secondly, and investment must establish a value enhancing long term strategic partnership.
Speaker Change: Thirdly, an arrangement must lead the securing long term funding optionality that would maintain and perhaps even lower the overall cost of funding and improve the competitiveness of our offers.
Speaker Change: Lastly, we commit to maintaining and even improving service levels and support across the range of retail finance commercial finance card products.
Speaker Change: And insurance and protection products.
Speaker Change: Later on in my remarks, I will go further into the Q1 financial results and fundamentals of the H DFS business.
Speaker Change: I plan to start on page four of the presentation, where I will briefly summarize the consolidated financial results for the first quarter of 2025, and subsequently I will go into further detail on each business segment.
Speaker Change: As Johan already mentioned consolidated revenue in the first quarter was down 23% largely in line with expectations across HPLC and <unk>, while revenue also decreased it live layer.
Speaker Change: Consolidated operating income in the first quarter was $160 million driven by a decline of 51% at <unk>.
Speaker Change: This was partially offset by an increase of 19% and operating income at H DFS.
Speaker Change: At the library or segment, the operating loss came in at $20 million.
Speaker Change: Consolidated operating income margin in the first quarter came in better than expected at 12, 1% relative to 15, 2% in the first quarter a year ago, representing a 310 basis point decline, primarily due to the impacts associated with lower volume as we deliver on our commitment to help bring down dealer.
Speaker Change: Tori.
Speaker Change: I plan to go into further detail on each business segment profit and loss drivers in the next section.
Speaker Change: First quarter earnings per share was $1 seven.
Speaker Change: In your opening remarks, he addressed retail sales and market share.
Speaker Change: The change in market share. We are now reporting on total cruiser category, given our future product plans and small cruiser and Furthermore, there are competitive dynamics on products that shift between large and small cruiser throughout 2024.
Speaker Change: Moving onto dealer inventory, we believe current dealer inventory and product availability or in an improving and healthier position overall as we approach the upcoming spring 2025 riding season.
Speaker Change: This is important with the recent launch of new model year, 2025 motorcycles, especially with the redesign softgel motorcycles introduced earlier this year.
Speaker Change: And year two of new touring motorcycles, which were first introduced with model year 2024.
Speaker Change: We remain committed to a year end dealer inventory reduction of approximately 10% and we are well on our way as already demonstrated in Q1.
Speaker Change: Looking at revenue HPLC revenue decreased by 27% in Q1.
Speaker Change: Focusing on the key drivers for the quarter.
Speaker Change: 30 points of decline came from decreased wholesale volume at <unk>, where motorcycle shipments in the quarter were down 33% coming in at 39000 units compared to 58000 units in the year ago period.
Speaker Change: This level of balances there need to be prepared for the upcoming riding season, and the potential for a softer demand environment, given the recent macro headlines and uncertainty.
Speaker Change: Two points of growth came from favorable year over year pricing for 2025 model year product and net sales incentives.
Speaker Change: Two points of growth came from mix as we continue to prioritize our most profitable models of markets.
Speaker Change: And finally foreign exchange impacts resulted in one point of decline to Q1 revenue relative to prior year.
Speaker Change: In Q1, <unk> gross margin was 29, 1%, which compares to 31, 2% in the prior year period the.
Speaker Change: The decrease of 210 basis points was driven by the revenue factors I, just spoke about and lower operating leverage which includes modest cost inflation of less than 1%.
Speaker Change: In order to deliver on our commitment to help bring down dealer inventory production volumes were down commensurate with the lower wholesale shipments in Q1 2025.
Speaker Change: Lower production volumes resulted in a higher fixed cost per unit on motorcycles shipped in Q1 2025.
Speaker Change: The unfavorable impact of lower operating leverage was modestly offset by other productivity savings related primarily to supply management during the quarter.
Speaker Change: Operating expenses in Q1 came in at $24 million lower than prior year at $199 million.
Speaker Change: This resulted in an H DMC operating margin of 10, 8%, which compares to 16, 2% in the prior year period, which included the sale of the all New Street glide and road glide motorcycles.
Speaker Change: Before we turn to the next slide I would like to give a brief update on our ongoing productivity tough program. One of the initiatives identified as part of the hardwired strategy, where we were expecting to drive a $400 million improvement in productivity by 2025.
Speaker Change: As a reminder for the cumulative three year period of 2022 through 2024, we achieved unlevered productivity savings of $257 million.
Speaker Change: We expect to achieve another $100 million in 2025, and again in 2026 exceeding our hardwired target by over 10%, but doing so one year later than anticipated as mentioned in February.
Speaker Change: In Q1, we achieved $24 million of Unlevered productivity, primarily for logistics and supply chain initiatives.
Speaker Change: Also to address what is on many people's minds terrorists.
Speaker Change: Q1, direct tariff impact for HCM CE was limited to $9 million.
Speaker Change: Harley Davidson is a business very centered in and around the U S. Three of four manufacturing plants are in use space, including final Assembly in York, Pennsylvania, and powertrain operations and injection molding with class leading paint application each in Wisconsin.
Speaker Change: We also have a U S centric approach to sourcing with approximately 75% of the component purchasing coming from the U S and all of our core products sold in the U S are assembled in the U S with that in mind, we estimate our 2025 impact from new tariffs to be in the range of 130 to 107.
Speaker Change: $5 million.
Speaker Change: We have a number of actions underway to mitigate the impact and the situation will remain fluid given the uncertainty that still exists.
Speaker Change: Turning back to <unk> and its performance at Harley Davidson Financial services Q1 revenue came in at $245 million, a decrease of 2% driven by modestly lower retail receivables and commercial receivables.
Speaker Change: <unk> operating income was $64 million up $10 million or 19% compared to last year.
Speaker Change: The Q1 increase was driven by a lower provision for credit losses, and lower operating expenses, while interest expense was flat in the quarter.
Speaker Change: The provision for credit loss expense was $8 million lower as a result of a favorable reserve change and lower overall credit losses.
Speaker Change: The reserve change was $7 million favorable as compared to Q1 of 2024, primarily on a decrease in the retail receivables.
Speaker Change: In Q1, H DFS is the annualized retail credit loss ratio was three 8%, which compares to three 7% from the year ago period.
Speaker Change: Retail credit losses were $2 million less year over year, However, lower retail receivables resulted in the small increase in the retail and credit loss ratio.
Speaker Change: Retail credit losses continued to be driven by several factors relating to the current macroeconomic environment and the related customer and industry dynamics.
Speaker Change: In addition, the retail allowance for credit losses for the first quarter remained flat at five 7% from Q4 of 2024.
Speaker Change: Total retail loan originations in Q1 were down 22%, while commercial financing activities were also down decreasing 14% to $1 3 billion.
Speaker Change: Total quarter end net financing receivables, including both retail loans and commercial financing was $7 4 billion.
Speaker Change: Which was down 6% versus prior year.
Speaker Change: So the library segment electric motorcycles revenue decreased in the first quarter of 2025 compared to the prior year period, driven by lower unit sales of <unk> electric motorcycles, and Stacey electric balance bikes, selling engineering and administrative expenses were $7 million lower compared to the prior year.
Speaker Change: Likewise, our operating loss of $20 million was in line with our expectations and compares to an operating loss of $29 million in the prior Q1.
Speaker Change: In terms of net cash used during the quarter Likewise used $18 million in Q1 of 2025 or $9 million less relative to Q1 of 2024.
Speaker Change: On a unit basis LIBOR your reported sales of 33 units in Q1 compared to 117 units sold in the prior Q1.
Speaker Change: The uncertain macro environment is weighing on the consumer's discretionary appetite for early stage EV products.
Speaker Change: Wrapping up with consolidated Harley Davidson, Inc. Q1 financial results, we delivered $142 million of operating cash flow, which was up $38 million from the prior year period.
Speaker Change: The increase in operating cash flow was due largely to lower net cash outflows for wholesale financing compared to Q1 of 'twenty four.
Speaker Change: Total cash and cash equivalents ended at $1 $9 billion, which was $467 million higher than at the end of Q1 prior year.
Speaker Change: This consolidated cash number includes $46 million at LIBOR.
Speaker Change: Also of note is the open indicated Harley Davidson does not plan to provide additional investments into LIBOR here beyond the line of credit agreement entered into in Q1 of 'twenty four of up to $100 million.
Speaker Change: Additionally, as part of our capital allocation strategy and in line with our commitment to return capital to our shareholders. We bought back $3 4 million shares of our stock at a value of $87 million in Q1 of 2025.
Speaker Change: As Johan already mentioned, we are mindful of the overall macroeconomic and tariff environment uncertainty and significant softness in high ticket consumer discretionary spend.
Speaker Change: Although we feel positive about the trajectory of our internal operation and overall operating efficiency displayed in Q1, we are withdrawing our 2020 financial outlook or guidance that we shared in early February.
Speaker Change: Specifically the metrics on slide 15 of our Q4 2024 earnings presentation as covered on February five 2025.
Speaker Change: In regards to items that we can control we look at capital allocation for the rest of 2025, where our priorities remained unprofitable growth of the hardware initiatives, which includes a slight reduction in capital expenditures, which is now a range from $200 million to $225 million.
Speaker Change: Dividends and continuing to execute discretionary share repurchases.
Speaker Change: We will continue to monitor our business performance and cash flow and determined and discretionary share repurchases based upon our cash flow.
Speaker Change: This will be determined in consideration of our plan to deliver on our $1 billion in share repurchases by the end of 2026, which we announced in July of 2024.
Speaker Change: As covered previously and the three plus year period.
Speaker Change: 'twenty two the current we have returned $1 5 billion in capital to our shareholders, including $1 2 billion of shares repurchased equivalent to 22% of shares outstanding at the beginning of this period.
Speaker Change: While shareholder returns for the U S discretionary leisure and power sports peers have been mired in a prolonged cyclical industry downturn over the past several years, we would like to reinforce some recent information we've released hog stock has outperformed its peer group from.
Speaker Change: From a total shareholder return basis, which includes dividends as of mid April Hog has outperformed its peer group by 10 percentage points in the past five years since may of 2020 by three percentage points over the last three years and by seven percentage points over the last year.
Speaker Change: And wrapping up as we continue in 2025, we remain committed to delivering on behalf of all of our stakeholders.
Speaker Change: We are dealing with a challenging macroeconomic environment and dynamic tariff circumstances, and we are pleased with the resilience and resourcefulness displayed by our Harley Davidson team members and dealers.
Speaker Change: And with that we will open it up to Q&A.
Speaker Change: We will now begin the question and answer session.
Speaker Change: Like to ask a question simply press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to we target a question press Star one again.
Speaker Change: And your first question comes from the line of Craig Kennison with Baird. Greg. Please go ahead.
Craig Kennison: Hey, Thanks, good morning rigor.
Craig Kennison: Regarding H DFS, what might be economics of a long term strategic partnership look like for Harley Davidson.
Craig Kennison: Hey, Greg Good morning. This is Jonathan so thank you for your question certainly as we work through anything from an <unk> perspective, we feel like we're in pretty early stages from a discussion standpoint, and where we go.
Craig Kennison: I think consistent with the messaging that we've put out relative to the H DFS transaction and we feel like paying attention to questions that we get from investors from time to time around how to value that business.
Craig Kennison: Really ensuring that we have the ability to markedly demonstrate the premium value of that business and its premium to book is something that we feel is very important and something that the market doesn't ask for.
Craig Kennison: So thats our first area of focus second as we think about sort of long term strategic partnership that really goes hand in hand with the long term funding optionality that we're looking for so ensuring that we really do have the ability on an ongoing and consistent basis.
Craig Kennison: Regardless of the dynamics of the economy in situations that we may be in to really ensure that we can maintain.
Craig Kennison: Our class leading returns maintain really attractive offers for our customers and for our dealers.
Craig Kennison: So that sort of falls into the next piece and then obviously as we look we do.
Craig Kennison: Envision continuing.
Craig Kennison: The.
Craig Kennison: Product portfolio robustness that <unk> offers so that's something that would continue long term relative to how any of the financials could be impacted sort of.
Craig Kennison: Short term short term or long term, we really need to let the process play out a little bit see where we land and I expect that we'll be able to give.
Craig Kennison: A more detailed answer to that question as we come together next quarter.
Speaker Change: And just as a follow up Jonathan what has changed from I guess, a prior conclusion from management that <unk>.
Speaker Change: H DFS was strategic is it that you think you can hang on to some of that strategic value.
Speaker Change: Getting a more realistic market valuation of what that business is truly worth or was there something else driving this.
Speaker Change: This change of heart.
Speaker Change: Yes, no I think that's absolutely it is really ensuring that we can.
Speaker Change: Give kind of a market based view on the on the value of that business. It is something that we do envision kind of.
Speaker Change: Still participating in so from that standpoint, it's not as if we envision sort of jettisoning, the entire business and not having access to <unk> and the strategic importance of that business.
Speaker Change: So from our perspective, we feel like it's probably good good governance. Good a good approach to be in the market and take a look at that business from time to time that is in fact, something that that we do every now and again across the business. We thought that it was worth addressing in our quarter in.
Light of the fact that somebody leaked some new somewhere and we know that it appeared.
Speaker Change: So in light of the fact that we knew that we would get questions. We needed to make sure that we are sharing the information equally among all investors.
Speaker Change: That's great. Thank you Jonathan.
Speaker Change: Yeah.
Speaker Change: And your next question comes from the line of Joseph <unk> with Raymond James Joseph. Please go ahead.
Joseph: Thanks, Hey, guys good morning.
Speaker Change: So Jonathan I want to go back to your answer to Craig on the on the <unk> sale I don't want to put words in your mouth, but it sounds like.
Speaker Change: The Genesis of this is you guys don't feel like Youre getting full value in your stock with this business not that a separation would benefit H DMC is that fair.
Speaker Change: Yes, I think that I think that is fair again, we certainly believe in the strategic nature of H DFS.
Speaker Change: As you know, it's a business that I ran before I was in my current role, it's a group of people, who I love it.
Speaker Change: A part of the business that I feel delivers really exceptional value to our dealer body and to our customers and so as we look forward certainly, but the elements that we've called out a couple of times here are elements that we do envision we would still be able to display going forward.
Speaker Change: Got it and just to follow up on that obviously, you can you've announced that you're looking to retire. This year I guess first any any update on timing and second wood.
Speaker Change: Your replacement.
Speaker Change: Or need some input on this decision.
Speaker Change: Yeah.
Speaker Change: Well, we'll see.
Speaker Change: We are talking about today has been something that has been part of our heartworm strategic evaluation over the last few years. So we're not doing anything that is new we always look to improve our business outlook.
Speaker Change: And if we can still get value. So this is something that was part of our overall strategic plan and from that point of view there is no point in stopping that but continue it.
Speaker Change: And the.
Speaker Change: Opportunity now that we believe it's worthwhile evaluated in terms of timing I can't really talk about it I'm not part of the.
Speaker Change: The committee of independent directors.
Speaker Change: Running the search.
And what I'll do is always supposedly continuing at pace you might have read led by Heidrick <unk> struggles and.
Speaker Change: I am committed to lead the company onto the suite a successor is appointed.
Speaker Change: The timing is really at the discretion of the board.
Speaker Change: Okay understood. Thank you.
Speaker Change: And your next question comes from the line of James Hardiman with City James. Please go ahead.
Speaker Change: Hey, good morning.
James Hardiman: And thanks for taking my questions in particular.
The process of trying to Wade through the tariff impact, maybe we could spend a little bit of time on that slide.
James Hardiman: Would love a little bit of color on the various tariff sources.
James Hardiman: I guess, China and Mexico.
James Hardiman: Well I guess, China is pretty straightforward, Mexico, I don't know if theres an opportunity to bring that number down obviously the U S. MCA compliance I think seems to be the key there.
James Hardiman: But then Canada EU specifically.
James Hardiman: Just help us think through some of that I think the EU is currently on pause in terms of tariffs on our stuff.
James Hardiman: But I know it's complicated.
James Hardiman: Guys as we think about if they do put tariffs on whether Taiwan would be tariffs or not.
James Hardiman: And that would be just how do we think through.
James Hardiman: Beyond tariffs some anti American sentiment, that's happening right now and whether you think that's it.
James Hardiman: A major risk factor going forward and if you've seen any of that.
James Hardiman: There's a lot there, but obviously this is an unprecedented situation we find ourselves.
Okay.
Okay.
James Hardiman: Tim.
Let me try and get my hands around the answer Yeah, I think Jonathan mentioned this important 100% of our core products are manufactured in the U S. 95% of our overall revenues. So manufacturing is from a U S perspective, not the issue Europe is obviously different.
James Hardiman: We believe based on what we understand from cases that are being negotiated.
James Hardiman: Part of the trade deal and the sort of.
James Hardiman: Highest tariffs that were waived around in the past by the Europeans.
James Hardiman: For motorcycles.
James Hardiman: Likely not apply but thats based on the information we have and that we would be part of an overall trade deal that is being negotiated.
James Hardiman: Manufacturing into the U S.
James Hardiman: It stays a minor role.
James Hardiman: Where the big impact is that the sourcing, but that said 75% of our product that we have.
James Hardiman: Raw materials and components that we are sourcing use space. So we've been very U S centric.
James Hardiman: Apply already which is actually higher than many auto manufacturers in the U S.
James Hardiman: But like everybody else like auto and other PSX is we do have exposure primarily to China. When you look at the big impact and that is because of the 145% duties that's the big.
James Hardiman: That's the big impact with 75% to 100 million potentially out of the $130 million to $175 million that we need to mitigate 25. So.
James Hardiman: At some point.
James Hardiman: The trade deal with China is critical.
James Hardiman: While our exposure.
James Hardiman: And our overall spend as a company in China is actually coming from China is well below 6% to 145% and make it so significantly significant which is why we've already since 2018 start to move proactively product components out of it out of China, and we are continuing to do so that's not a process that had been so.
James Hardiman: Overnight.
James Hardiman: But it's certainly part of part of our script.
James Hardiman: So I think that should give you a bit of an indication.
James Hardiman: But we do of course need help.
James Hardiman: Especially when it comes to China, just like everybody else in.
James Hardiman: Pierre spaces and in auto as well because some components just that's been historically very centered around Chinese sourcing and manufacturing, but overall I think we ended pretty decent position all things considered versus some of our competitors.
James Hardiman: Yes, James Thanks helpful.
James Hardiman: A couple of points to as you go through and you look at what we've included in the in the picture for 2025, and our and our little part that kind of lays out the impact.
James Hardiman: We proactively thought through where do we ship product in ahead of time, where do we try to make sure that we mitigate exposure in the current period.
James Hardiman: 2025, as the current period and so as we've worked through that and Thats why that number is contained in the way that it is and then as <unk> talked about the situation remains very very fluid.
James Hardiman: Certainly feels a little bit different from one day to the next which is really where all of this land as we start adding up.
James Hardiman: Significant variability that could be out there, depending upon where things land or our range could be wider than even what we put on this.
James Hardiman: On the our table, but as we really try to distill this down to provide a better picture that we can we think this is most likely with what we know today.
James Hardiman: It will probably look different a week or two from now. So this is another one where we do expect that we will provide an update and provide you with more information. We certainly hope for all of us that we have greater clarification over the coming 90 days.
Speaker Change: And Jamie Thanks.
Speaker Change: In terms of sentiment, we haven't really experienced something that we would consider significant just like some in auto have experienced but.
Speaker Change: I think people can differentiate between us being Harley Davidson and terrorists overall the government imposed.
Speaker Change: So I would say that at.
Speaker Change: At this point in time not more than issue people can differentiate very well.
Speaker Change: And our business in Canada, if you could take an example has not suffered as a result.
Speaker Change: Okay, that's really helpful and I guess to that demand question.
Speaker Change: Obviously with you guys.
Speaker Change: <unk> was withdrawn I guess I'm just trying to wrap my head around how much of that is the tariff slide right.
Speaker Change: We could see in the tariff numbers.
Speaker Change: And sort of the ex tariffs business right.
Speaker Change: And maybe sort of drawing a distinction between the pre liberation day environment, right, which was essentially your first quarter and then the post deliberation the environment.
Speaker Change: So maybe speak to what you've seen in terms of demand trends.
Speaker Change: Can tell us about April great, but even if not how you think about <unk>.
Speaker Change: Sort of where the consumer's head is at with your product.
Speaker Change: Yes, I mean as we've just completed.
Speaker Change: April.
Speaker Change: We usually don't talk about the running month, but this is now completed because we have a little later than usual with our earnings. So if you look at February March April in the in North America, We've seen sequential improvement from February to March and April So April is actually.
Speaker Change: North deteriorated slightly improved you could say.
Speaker Change: <unk> significantly improved versus March.
Speaker Change: It looks better than February.
Speaker Change: Internationally, it's pretty much the same as I mentioned in my remarks opening remarks.
The international markets were pretty much in line with.
Speaker Change: Maybe one exception in Asia.
Speaker Change: With our expectation, we've always said got it going into the year, our comps get much easier in the second half of the year and as we are lapping.
Speaker Change: Substantially Turing launch in particular in North America.
Speaker Change: Tougher comps too quick and that will take a little bit of time, but.
Speaker Change: That's basically what we see in especially in the U S. Most important market improvement versus March versus February.
Speaker Change: That's really helpful color. Thank you.
Speaker Change: And your next question comes from the line of Robin Farley with UBS Robin. Please go ahead.
Robin Farley: Thank you just circling back to the financial services topic I guess.
Speaker Change: Over the years it.
Robin Farley: It seemed like the <unk>.
Robin Farley: <unk> is sort of the marketing arm for Harley right.
Robin Farley: Don't go on sale.
Robin Farley: The financing offers.
Robin Farley: Obviously the majority of.
Robin Farley: Hi, Thanks, I was financed through Etfs.
Robin Farley: Been a meaningful part of <unk>.
Robin Farley: Currently the overall earnings in any given year.
Robin Farley: So I guess, what's different today that would.
Robin Farley: Make that move.
Robin Farley: It makes sense to sell it because it seems like all of those factors that were historically reasons why it didn't make sense.
Robin Farley: Or still kind of factors that are in play today. So just wondering what has changed in the environment or your expectations.
Robin Farley: Makes it seem like something you wanted to know.
Robin Farley: Yeah. Thanks Robin.
Robin Farley: You can say that we are planning to sell HD. If in fact, we wanted to clarify a rumor that's out there that said we would that's not the case.
Robin Farley: Having been around a little bit.
Speaker Change: Especially in the times of the financial crisis, there was a lot of pressure on the business to sell H DFS.
Speaker Change: At the time that would not be a good idea and we all believe that this is still a good idea, but that said there is significant value that we had not being appreciated for its business.
Speaker Change: If there is a win win scenario for our customers for our dealers and for our shareholders. It's something that we need to look into and Thats part of our overall strategy and Thats, what we were trying to.
Speaker Change: Convey with our remarks, so there is no sale of H DFS imminent.
Speaker Change: Okay. Okay. Thank you and then just wanted to follow up on you mentioned the retail environment in April maybe improved versus March.
Speaker Change: Okay.
Speaker Change: It probably assuming that with the suspension of guidance, it's probably still worse than maybe your expectations for the year.
Speaker Change: When you had given previous guidance.
Speaker Change: I know you talked about increasing marketing spend is there anything else.
Speaker Change: Pacing with a net positive and in Q1, but is that.
Speaker Change: Is that a lever that you're going to maybe need to pull in this environment just kind of thinking about what we should expect here in kind of peak riding season right.
Speaker Change: Right, Yeah, I think what I said in my opening remarks, it is important to bear in mind, our Turing launch very significant launch.
And earlier in the year last year and significant funds were allocated early in the year, which we moved to our marketing development funds later into the riding season and starting now. So there is there is a shift that you will need to bear in mind.
Speaker Change: And I think you alluded to that already in our February call that we have tough comps too.
Speaker Change: Look again, it's due to the Turing launch and the.
Speaker Change: Shift in new product that we've been launching and marketing as of now so that that has that is definitely contributing factor.
Speaker Change: The promotional environment I think it's interesting to see that some of our competitors.
Speaker Change: Blanketing the promotions for 'twenty for some selectively already promoting 25, we have very targeted promotions and market nothing for 25.
Speaker Change: Yet so the promotional environment of our competitors has certainly been more significant than ours and that's something of course that we need to keep in mind, but that said.
Speaker Change: I would not go much of a conclusion.
Speaker Change: Not giving guidance to better <unk>, better or worse, but as I said earlier.
Speaker Change: More or less in line with international market. When it comes it comes to retail sales.
Speaker Change: Japan as it has been.
Speaker Change: And North America has been softer than anticipated. So that's as much color as we can provide right now with the sequential improvement between February March and April.
Speaker Change: Yeah, and I would I would add Robyn on your pricing your kind of pricing and mix question as we think about some of the timing of when soft sales hit we began shipping those.
Speaker Change: Really pretty pretty late in the first quarter as we start to think through.
What our mix looks like.
Speaker Change: So from an overall pricing and mix perspective, we probably we probably we may see a little bit of pressure on that as we look out in the balance of the year with some mix changes in the way that we price some of the different products.
Speaker Change: Yeah.
Speaker Change: And we are seeing that the consumer is certainly a little bit sensitive on top and high discretionary so for us it's a pretty close watch I think in terms of the overall.
Speaker Change: Portfolio sales what mix looks like as we get into the balance of the year.
Speaker Change: But I do think importantly, as Johan touched on we have competitors, who are who are already discounting. Their 25 that is something that we don't think promotes a lot of a lot of health across the business.
Speaker Change: From a long term standpoint, and so that's something that we certainly are making sure that we're being a lot more disciplined on but obviously something that we are gonna have to make sure that we watch.
Speaker Change: Thank you for your questions.
Speaker Change: Maybe one additional topic comments is some proprietary research we talked a bit about ridership in the past.
Speaker Change: We often do research with our with owners of non owners and currently what we are getting back as feedback is at 60% of non owners.
Speaker Change: Roughly half of our existing owners.
Speaker Change: Feel that the current economic environment is causing them to delay a purchase.
Speaker Change: And writers and non owned our intended side that need to see improvement in the personal finance financial situations before they considered purchase and the primary reason is interest rates and overall economic uncertainty, so thats something thats coming back strongly which would indicate that.
Speaker Change: We anticipate to see a change from a cyclical downturn into something that's stabilizing and ideally interest rates coming down.
Speaker Change: More consumer confidence coming back, especially for bigger ticket discretionary product.
Speaker Change: Okay, great. Thank you.
Speaker Change: And your next question comes from the line of AD expiry at Bank of America. Alex. Please go ahead.
Alex: Alright, thanks for taking my questions here.
Speaker Change: First I wanted to ask what led to the decision to bring back the entry level bikes any sense on.
Speaker Change: The pricing sort of look and feel of those units will they resemble prior models such as the iron 83.
Speaker Change: On the model launch timing shift can you just give us a little more color on that seems like a pretty significant change in sort of the cadence of the business will for model year 'twenty six launch this fall how have you faced that in.
Speaker Change: That'd be really helpful. Thanks.
Speaker Change: Sure.
Speaker Change: The first question in terms of entry level.
Speaker Change: As part of our strategy, we've always said selective expansion.
Speaker Change: And the definition.
Speaker Change: Which gets additional investment.
Speaker Change: First few years of the hardware, we invested heavily in our core business because there was no investment going whatsoever into our core businesses of touring and.
Speaker Change: And Troy <unk> trike and.
Speaker Change: As time progressed, we hit the necessary capex to start investing into entry level.
Speaker Change: Said historically, if I look at the last 30 years, we've never had an intermodal it actually made money.
Speaker Change: For Harley Davidson and we believe that we have an opportunity now based on how we are engineering. These bikes to actually come out with a product that is competitive is it look sound and feel very Harley Davidson and profitable so thats and thats something that we feel good about after having made significant.
Speaker Change: Investments in our core business, which carry 80% of our overall profitability.
Speaker Change: Hi, Alex and I'll talk a little bit about model year timing. So as you can imagine as we shift model you're timing it certainly has implications across.
Speaker Change: The entire company that has some implications for our dealer network as we think through the way that we carry outcome activities. So it will be a change that that takes us sort of.
Speaker Change: A number of years to get everything fully on track and pulled back into the fall.
Speaker Change: <unk> got a lot of feedback from our dealers, who have got a lot of feedback from customers around the fact that they sort of have enthusiasm for some key dates and some special moments that can lineup with a falling.
Speaker Change: All internal.
Speaker Change: We do also think that it helps us extend the season, a little bit so from a dealer perspective, we think there is a whole lot of benefit of really driving people into the dealer network through through the fall and some of the month.
Speaker Change: We start to see the lease change in leaf fall. So we think there's some benefit from that standpoint.
Speaker Change: That our dealers will really appreciate and enjoy.
Speaker Change: As we think through the timing associated with that from an overall sales cadence perspective.
Speaker Change: Is that it helps extend it really helps our dealer network in a way that they have provided feedback on and it's something that we've listened to but again your question in terms of what does it look like over.
Speaker Change: What does it look like is it a multi year thing it absolutely is multi year. It does actually require sort of what I would define as herculean effort by engineering supply chain manufacturing as we think through all of the implications for them.
Speaker Change: Certainly have increased the workload for our marketing and commercial teams as we think about a year, where we ended up doing a little bit more from an overall marketing dealer education dealer training standpoint.
Speaker Change: So it's a heavy lift in the year that you start to make the change but it will begin.
Speaker Change: This fall for some of our 26 model year motorcycles, so a lot of excitement around there. Thank you Alex.
Speaker Change: Perfect. That's all incredibly helpful best of luck going forward.
Speaker Change: And your next question comes from the lineup Noah <unk> with Keybanc capital markets. Please go ahead.
Noah: Hi, Thanks for taking my question.
Noah: Just just around some of the live wire comments that you've made can you remind us how youre thinking about kind of like the annual cost savings that youre tracking towards going forward.
Noah: And then as you look longer term has anything changed.
Noah: In terms of your thinking around that business. Thanks.
Noah: Yes.
Noah: As I indicated last.
Noah: Adjusting operating loss of 59.
Noah: Million in cash burn of 49, which has dramatically reduced to previous year and to the original guidance. Likewise gave in February so we continue to work down.
Noah: The cost and that's on an EBIT level.
Noah: What has changed is exactly what I've mentioned in my opening remarks.
Noah: <unk> headwinds set up spacing.
Noah: The power sports and discretionary Alicia industry, but to those.
Noah: The difficulties that even more complicated in the EV segment, which is.
Noah: Due to the effect or is actually leading to EV adoption. That's just not happening as we originally anticipated and that is because we have no longer any incentives for EV purchases for our customers. We have a less favorable regulatory environment, which was a huge risk for Harley Davidson only a couple of years ago.
Noah: And to the charging infrastructure here, we very much rely on auto.
Noah: Expanding much slower than that.
Noah: Than anticipated throne.
Noah: Around the world Likewise selling.
And that's what led us to look at to all options and likewise to do the same thing.
Noah: And we are driving significant bom cost reductions bill of material cost reductions, which I will show a current and maybe talk a little bit more about and additional cost savings to really reduce the pill burden and the losses.
Noah: In order to be able to get to a sustainable business model with the existing funds that are currently available.
Noah: Program do you want to add anything to that sure. Thank.
Speaker Change: Thank you Johan.
Speaker Change: As you've said, we've done tremendous progress in our cost saving.
Speaker Change: And we continue to do so.
Speaker Change: Now we also recognize that we play very specific segment of the market and we continue looking at the addressable market that we could tap into where easy can better shine. There are plenty of opportunities. We're looking at right now too early to talk about it but we absolutely want to make the best use of the money available.
Speaker Change: And we've made a ton of progress and we continue improving on operating income.
Speaker Change: Cash burn going forward.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of David Macgregor with Longbow Research David. Please go ahead.
David Macgregor: Hey, good morning, everyone and thanks for taking my questions.
David Macgregor: I guess I just wanted to start on tariffs and I wasn't clear from your answer to James' question are we just not talking about mitigating circumstances at this point, there's just too much uncertainty around this whole issue and there's more to come on that or.
David Macgregor: Is there some high level discussion you can provide in terms of how you go about addressing that litigation.
David Macgregor: Sure of course.
David Macgregor: I think the overall there are five things we are doing first of all we are engaging very actively with the with what with D. C. With the administration and actually administration. So not just the U S administration, but also Europe in particular to ensure that they have.
David Macgregor: Good understanding of our position and the impact that those tariff on our business at home and abroad.
David Macgregor: There's a lot of talk about auto, but we want to make sure that we are part of the discussion on the agenda. So that's critical and I think there's a pretty good understanding.
David Macgregor: The impact number one so any future tariff do you set up which will be made should be including us and that's incredibly important so we're not left out.
David Macgregor: We are also.
Speaker Change: Mitigation into short term, which Jonathan.
Speaker Change: Jonathan talked about for 25 and longer term because you can't just shift and change supply chain overnight and you got to make sure that there is some sort of some certainty in terms of tariffs that either stick and stay around or might just be temporary. So you don't want to make some big decisions and rash decisions without.
Speaker Change: Knowing what the longer term tariff situation is going to it's going to look like so short term, we've been accelerating or slowing down shipments to navigate the 10% tariff environment during the year, which is why the impact.
Speaker Change: As already been much lower.
Speaker Change: <unk>.
Speaker Change: We would have seen in the current tariff environment. We are also making adjustments to our supply chain short term, where we can.
Speaker Change: We've been diversifying so that we have more opportunities, but also reducing and building up new capacity elsewhere, which usually takes a little bit of time, that's nothing that happens overnight.
And the most immediate focus is on all Chinese content, given obviously the size of the impact with 145% tariff.
Speaker Change: Now imposed on it.
Speaker Change: We are also slowing down expenses overall without compromising product and marketing investments as Jonathan alluded too important in this environment and last but not least we are looking at pricing, but I think we have to also be cognizant of the current recessionary environment for discretionary leisure leisure product.
Speaker Change: And to make sure that we remain competitive. So this is a bit of a trade off between pricing versus volume in a very sensitive environment, but of course pricing is a lever that we're also looking at but.
Speaker Change: Not so much at this point in time, maybe selectively without.
Speaker Change: Significant pricing increases at least in the short term in the making and.
Speaker Change: Pretty much what the team is working literally 24 Sachin mittal.
Speaker Change: Mitigating short term and planning for the long term.
Speaker Change: And I guess, you've talked about your U S centric manufacturing footprints are U S centric sourcing approach.
Speaker Change: Do you foresee once the dust starts to settle around some of these tariff issues just could ultimately results in a competitive advantage for you in the United States.
Speaker Change: So could you talk about the extent to which that might be.
Speaker Change: Possibly if the tariffs stay high for imported motorcycles.
Speaker Change: That could be a competitive advantage because.
Speaker Change: Our big disadvantage to us that our international competitors, we're importing bikes with essentially no tariff.
Speaker Change: We were very much focused on U S manufacturing.
Speaker Change: And so that could be a positive that it said would not help us obviously, we then in Colorado trade barriers elsewhere in the world such as Europe.
Speaker Change: We do not have European manufacturing so.
Speaker Change: The positive that could be potentially a negative and we hope hopefully we will win in the end, but from a U S. P. A U S perspective.
Speaker Change: There is obviously it would be helpful. Given our U S manufacturing base.
Speaker Change: And then there's the supply.
Speaker Change: The chain the supply chain that is happening for everybody to be obese.
Speaker Change: The bulk of the most probably the most U S centric in terms of supply chain was 75% is still a big whammy. When you have to have even a few components come out of Asia with 145% duty I mean, there's not much you can do it but you can't just shift these things overnight. So that's something that we're looking at longer term for sure and we've all.
Speaker Change: We started to do that many years ago.
Speaker Change: Right. Okay. Thank you very much good luck.
Speaker Change: And our final question comes from the line of Tristan Thomas Martin with BMO capital markets. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Just one from me so it sounds like with the mildly or probably some of the model year 'twenty six launches occurring in the fall how does that change how we should think about kind of quarterly cadence relative to where you were last.
Speaker Change: Last quarter.
Speaker Change: Alrighty, Thanks, Kristen so from a from a.
Speaker Change: Yeah.
Speaker Change: Cadence perspective, we're still working through.
Speaker Change: Some of the exact and final details on that as you probably noticed we.
Speaker Change: Through guidance relative to relative to our unit guidance.
Speaker Change: So from that standpoint, we're probably not going to get into that in terms of the appropriateness of having that conversation when it's something that has been withdrawn.
Speaker Change: I do expect that we'll be able to provide more information in 90 days from now when we do have a little bit of greater certainty around the tariff environment, but kind of second and third order effects that that ends up having.
Speaker Change: So more to come on that front, but from our perspective, we certainly do not envision using it as an opportunity.
Speaker Change: A ton of inventory in later in the year, if that's sort of what the question could be implying.
Speaker Change: So from from our perspective, we did talk through the importance of making sure that we are paying attention to retail trends in the marketplace. What we're doing from a wholesale perspective, and really keeping alignment and balance between those items.
Speaker Change: So I think when we had originally provided our guidance.
Speaker Change: Back in back in the February timeframe, we talked through ensuring that we would that we would really try to manage our our dealer inventory very carefully we do not envision this as an opportunity to load up dealers with inventory or do anything from that standpoint.
Speaker Change: So we will continue to be very careful in what we ship in and really looking at the retail trends, but so nothing so all of that.
Speaker Change: That said I think recognizing that it is.
Speaker Change: We are.
Speaker Change: Certainly a unique period.
Speaker Change: We don't envision that there is something thats.
Speaker Change: Tremendously meaningful impact from a volume perspective for 2025.
Speaker Change: As we move forward into 2000, and when we think about cadence, we certainly will be able to give you more information as we're getting closer to that timeframe, but for right now we don't envision kind of meaningful movement in overall cadence of the quarters.
Speaker Change: And I think consistent with what we've also said he said we are committed to our inventory reduction.
Speaker Change: In particular in the U S for year end, but also overall globally. So that that stays right. So that should be giving you a good indication that not as much should be changing changing as a result of the multi year shift.
Speaker Change: Thank you guys.
Speaker Change: That concludes today's conference call you may now disconnect.