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

Thank you. Good morning. This is Shawn Collins, the Director of Investor Relations at Harley-Davidson. You can access the slides supporting today's call on the Internet at the Harley-Davidson Investor Relations website. As you might expect, our comments will include forward-looking statements that are subject to business risks, that could cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest filings with the SEC. With that, joining me this morning for the first part of the call are Harley-Davidson Chief Executive Officer, Jochen Zeitz; also Chief Financial Officer, Gina Goetter; and we also have LiveWire President, Ryan Morrissey. In addition, for the Q&A portion of today's call, we will have Harley-Davidson Chief Commercial Officer, Edel O’Sullivan; and we will also have Harley-Davidson's soon to be Interim Chief Financial Officer, David Viney. With that, let me turn it over to our CEO, Jochen Zeitz. Jochen?

Thank you, Shawn, and good morning, everyone. Thank you for joining us today for our Q1 2023 results. Harley-Davidson delivered a solid start to '23, the third year of our Hardwire strategic plan with consolidated first quarter revenue up 20% to $1.789 billion, driven by HDMC. We're pleased with our start to the year and with the execution of our strategic plan through the quarter. In this, our 120th anniversary year, we anticipate momentum to build over the year. However, we maintain a measured outlook on the wider economic picture. Harley-Davidson continues on its transformational journey. As we've said before, through the foundational work of the Rewire and the execution of the Hardwire, we've changed our overall approach and focus as a business from prioritizing unit growth at all costs to a more holistic view on profitable growth. The Hardwire emphasizes stronghold categories that we believe are the most profitable motorcycle segments globally as well as selective expansion opportunities, placing an overriding focus and desirability that reflects the premium nature of our brand and product. As we navigate the evolving macro environment, we will remain committed to these principles instead of a chase for volume for volume's sake in our core categories. We also remain confident in the innovation pipeline that will power our future. We continue to work with our dealers to ensure our activities and fairs are aligned to healthy demand generation, especially in the current consumer environment. The programs we designed and are implementing share four goals: generate demand and traffic to our dealerships and digital properties; provide tools and options to address concerns around affordability; ensure proper management of inventory in its lifecycle; and reinvigorate sales effectiveness after a couple of years of lower product availability. Desirability remains at the heart of our strategy. We believe a highly promotional approach would negatively impact profitability in our most premium categories. So we continue to focus on activities that motivate the customer to engage with our dealers to find the right bike for them. Our season opener on March 25, which saw over 90% of the network participating, is a great example of this. And we intend to continue to focus on marketing, lead generation, and messaging that is aligned with our strategy. Now I'll highlight select pillars of the strategy, starting with Pillar 1, profit focus. With the Hardwire, we made a commitment to strengthen and grow Harley's leadership in our strongest smaller cycle segments, namely touring, large cruiser, and trike. Not only are these segments the most profitable in the market globally, but we also believe these segments offer potential to inspire more engagement while compelling new customers and riders to choose Harley-Davidson. Aligned to this focus in January, we kicked off our 120th anniversary with the first reveal of our '23 lineup, celebrating 120 years of Harley-Davidson pride and craftsmanship. This initial release included the CVO Road Glide limited anniversary model and six additional limited edition motorcycles, featuring exclusive 120th anniversary commemorative paint finishes and details. The release also included a refreshed Harley-Davidson breakout performance cruiser, the exciting Road Glide 3 trike model, and new Nightster special middleweight sport motorcycle and the reintroduced Freewheeler trike model. We also made a commitment to introduce limited edition motorcycles that align with our strategy to increase desirability and to drive the legacy of Harley-Davidson. With that in mind, for our second reveal of the year, I'm excited to announce that next week we will be launching additions to our icons and enthusiast collections. Stay tuned for more. At the same time, we retired the EVO Sportster in North America, a model that was cherished over the last 65 years but has been carrying negative margins for the Motor Company for many years. It is important to note that the phaseout of Sportster and the cadence of CVO model rollout throughout the year has created a different retail unit volume dynamic in '23 versus prior years. And while RevMAX will be able to compensate in part for the EVO Sportster, we need to consider the different price and overall positioning. The company also continues to selectively focus on opportunities in segments aligned with the company's product and brand capabilities that demonstrate a path to market leadership and profitability. In redefining our geographic footprint, we made a commitment to strategically drive target markets to their full potential by developing custom product and go-to-market approaches. With that in mind, we have been encouraged by the reception of our HDX 350 and 500 bikes available currently in APAC. We believe this launches a new vector for growth in select markets for a new customer, and we are excited for future opportunities. Under our growth beyond bikes pillar, we know that parts and accessories, apparel and licensing, and Harley-Davidson Financial Services are important components of the company's future success as a global lifestyle brand and provide untapped potential to grow our customer base and add to customer lifetime value. For Parts & Accessories, despite lower retail volume, we continue to drive meaningful P&A metrics and growth in the service ROs in our dealerships as part availability improved with gross margin expanding in Q1. For apparel and licensing in January, we successfully launched our 120th anniversary collection, and in February, we introduced HD collections, the grouping of lifestyle apparel lines, defined by the heritage and craftsmanship synonymous with Harley-Davidson. Bringing together the many facets of motor culture while paying tribute to our heritage, we are focused on building the Harley-Davidson Apparel & Licensing business while gradually increasing and expanding the overall lifestyle apparel offering of our brand. To improve customer experience, we remain committed to major strategic priorities in dealer facility upgrades, enhanced omnichannel offerings, and revamped motorcycle distribution capabilities, which we expect to roll out throughout '23 and '24 as well as a renewed focus on HD experiences for our riding community and brand aficionados as we ramp up our 120th anniversary celebrations, but more about that later this year. In summary, while overall patterns of traffic and demand as well as other metrics of consumer health showed some restraint in Q1, we believe that we can deliver on our expectations in year 3 of our Hardwire strategy and are excited for what lies ahead for our company and brand. We remain committed to our strategic focus on innovation and profitability under the broader banner of desirability as a premium brand in the sector. Before I hand over to Ryan, in January at our model year launch, I also said that everyone should stay tuned for more. As we committed to innovate in our core categories as part of our new strategy, I'm pleased to highlight yesterday's kickoff of a new era of CVO Touring bikes, the subject of huge amounts of Internet intrigue already. Building on our commitment to invest in our core categories, yesterday we started teasing the next generation of our CVO Touring motorcycles that will lead us into the future. In 1969, Harley-Davidson introduced the Batwing Fairing to the Electra Glide, a spark that would ignite a new generation of Harley-Davidson motorcycles that will define the Grand American touring category and the lineage of motorcycles cherished by generations of riders that followed. The legacy lives on today with two of Harley-Davidson's most iconic motorcycles in history, the Street Glide and Road Glide, with DNA that can be clearly traced back to the 1969 Electra Glide. Over the decade, Harley-Davidson designers and engineers have thoughtfully evolved these motorcycles, introducing incremental improvements to further enhance the riding experience while carefully respecting the heritage and position as icons within the hearts and minds of enthusiasts around the world. Since 1999, the most aspirational of these models have been forged from Harley-Davidson Custom Vehicle Operations, CVO, the collection of limited production motorcycles that deliver the ultimate refinement of styling, design, craftsmanship, and attention to detail, along with top-of-the-line performance. With the introduction of the all-new CVO Street Glide and CVO Road Glide, we've completely reimagined two of Harley-Davidson's most iconic motorcycles, and we've redefined the boundaries of CVO in the process. By rethinking these two models from the ground up, we are ushering in a new era of innovation, design, engineering, and technology while expanding the definition of Harley-Davidson CVO and taking the Grand American touring experience to another level. The new CVO Street Glide and CVO Road Glide break the mold and reset the bar for the Pinnacle Harley-Davidson riding experience. We'll be sharing more about these motorcycles at our official launch in June. Now I will hand over to Ryan Morrissey, President of LiveWire to provide an update on the quarter at LiveWire.

Thank you, Jochen. Good morning, everyone. As we close the first quarter of 2023, LiveWire is intensely focused on the final stages of bringing the brand to Europe and moving the Del Mar into production. Our launch events this week in Paris, London, Berlin, and Amsterdam bring these two major efforts together and introduce European riders to the next great addition to the LiveWire portfolio. In addition to building up our European dealer team, we have contracted with over 30 retail partners to join us in the field and take on a complementary role in our marketing, sales, and service efforts. We've also announced U.S. pricing for the Del Mar, in line with our original ambition for the bike, and the addition of a launch edition for Europe. Overall, we are very pleased with the reception to Del Mar in both the media and potential customers that are impressed by the technology in combination with the accessibility of the price point. We are moving into the final stages of preparing for production and expect to deliver the first bikes in the third quarter of 2023 as we communicated earlier this year. In terms of our business plan, we are within our expected parameters for the year with continued focus on getting new products to market and maximizing the conversion of the reservations we collected since announcing the Del Mar in the U.S. last year. And now I'll hand it over to Gina Goetter to talk through the financial performance of Harley-Davidson and LiveWire in greater detail.

Thank you, and good morning, everyone. Q1 2023 is the second full quarter under our new reporting structure with the three segments of HDMC, HDFS, and LiveWire. Despite the decline in retails, the financial performance finished ahead of expectations. Pricing actions, unit mix, productivity, and prudent cost management contributed to the significant HDMC margin increase versus the prior year. Turning to our financial results in the first quarter. Total consolidated HDI revenue of $1.8 billion was 20% higher than last year, with growth across HDMC and HDFS and a decline in LiveWire. HDMC revenue growth was driven by wholesale motorcycle unit growth of 14%, coupled with continued pricing realization across the portfolio. Harley-Davidson Financial Services segment revenue was up 16% versus prior year, up higher finance receivables. The LiveWire segment decline of 25% was a result of lower volume across both electric motorcycles and electric balance bikes. Total consolidated HDI operating income was $370 million and $80 million better than the prior year. HDMC operating income of $336 million was 53% higher than the prior year, driven by the growth in revenue, coupled with gains in operating margin. HDFS operating income of $58 million declined by 32%, driven by higher interest expense and higher credit losses as macro conditions softened. And finally, LiveWire operating loss of $25 million included a step-up in product development investment behind the launch of the Del Mar product and increased operating expense associated with standing up the new company. First quarter earnings per share of $2.04 compares to $1.45 last year as a result of the factors noted above as well as continued favorability in the below-the-line items. Global retail sales of new motorcycles were down by 12% versus the prior year. North American Q1 retail sales declined by 17% due to a combination of staggered rollouts for our new products and anniversary models as well as a shift in the customer mindset given the current macro environment. APAC Q1 retail sales grew by 3% as we continued to experience strong demand across key markets, including high single-digit growth in Japan. EMEA Q1 retail sales declined by 6%, a decline that was primarily driven by our exit from Russia as well as the planned shift of our unit mix to focus on more profitable units. As a result of this unit mix shift and improving FX rates, overall EMEA profitability improved. Excluding Russia, EMEA retail was down 1%. Latin America Q1 retail sales declined by 25% and were adversely impacted by regional economic conditions. However, even though retail units were down, we continued to deliver higher levels of profitability for the region. Improved production in the first quarter of 2023 and in the second half of last year has allowed us to improve product availability at our dealer network ahead of riding season. On a year-over-year basis, average inventory was up 70%, with the increase primarily attributed to healthier inventory levels compared to the very tight 2022. Inventory continues to be materially down versus both 2020 and 2019. From a retail pricing standpoint, U.S. new motorcycle transaction prices finished within our desirability threshold of plus or minus 2 percentage points of MSRP. Looking at revenue, total HDMC revenue increased by 21% in Q1. Focusing on the key drivers through the quarter, 12 points of growth came from volume driven by wholesale unit growth, 8 points of growth came from pricing and lower incentives through both global MSRP increases and pricing across the parts and accessories and apparel businesses. Mix contributed 3 points of growth as we continue to prioritize our most profitable models and markets, and finally, 2 points of negative impact came from foreign exchange. Looking more closely at margins, as a reminder, our commentary is now based on the updated definition of HDMC which excludes LiveWire. HDMC gross margin in the first quarter was 35.8%, which compares to 31.5% in the prior year. The improvement of 4.2 points was driven by pricing, unit mix, and cost productivity, offsetting the impact of cost inflation and foreign exchange headwinds. We continue to see the supply chain environment improve, and we experienced more modest cost inflation, which was approximately 2%. On a year-over-year basis, the deceleration continued to be largely driven by logistics, including lower expedited shipping expenses and freight rates. Raw materials and metal markets have also continued to moderate. HDMC operating margin improved to 21.6% in Q1 from 16.9% in the prior year. The improvement was driven primarily by the factors already noted. HDFS operating income in Q1 was $58 million, down 32% compared to last year. The Q1 decline was driven by higher borrowing costs and higher credit losses. In Q1, HDFS' annualized retail credit loss ratio increased to 3.2%, which compares to an annualized loss of 1.9% in fiscal 2022. The increase in credit losses was driven by several factors relating to the current macro environment. In addition, the retail allowance for credit losses for the first quarter remained steady at 5.1%. Total retail loan originations in Q1 were down 15% while dealer inventory financing or wholesale receivables were up 88% to $1.2 billion behind stronger product availability compared to the prior year. Total quarter-end net financing receivables, including both retail loans and dealer inventory financing, were $7.6 billion, which was up 11% versus prior year. Total interest expense in Q1 was up $31 million or 75% versus prior year. The increase was driven by higher average debt outstanding and a higher cost of funding. During Q1, we raised $1.25 billion in the capital markets. And at the end of the quarter, cash and committed bank and conduit facilities resulted in an HDFS liquidity position of $2.8 billion. This, together with the subsequent Euro MTN deal that we completed in April, has put HDFS in a very strong position from both a funding and liquidity position. For the LiveWire segment, first quarter revenue decreased by 25% from $10 million to $8 million, with the majority of the decline driven by its channel partners for electric balance bikes taking a more conservative approach to inventory. Operating loss of $25 million was in line with expectations, with the step-up in loss versus prior year attributed to the continued investment in product development related to the company's Del Mar platform and the delivery of its second electric motorcycle. Operating losses also incorporate the added cost of standing up a new organization. Wrapping up with Harley-Davidson, Inc. financial results. In the first quarter, we delivered $47 million of operating cash flow which was down from $139 million in the prior year. The decrease in operating cash flow was due primarily to an increase in receivable originations related to the timing and volume of wholesale shipments in Q1 2023. Total cash and cash equivalents ended at $1.6 billion, which is $167 million higher than at the end of Q1 last year. This consolidated cash number includes $236 million from LiveWire. Additionally, during the first quarter, as part of our capital allocation strategy, we bought back 2 million shares of our stock at a value of $84 million. As we look to the rest of 2023, we are reaffirming our full year guidance, which expects HDMC revenue growth of 4% to 7%. The growth forecast incorporates approximately 2 points of unit growth, 1 to 2 points of mix as we continue to focus on our profitable core business and 1 to 2 points of pricing as we offset a more moderated inflationary outlook. Furthermore, we continue to expect the parts and accessories and apparel and licensing businesses to support top line growth in line with our Hardwire strategy. We continue to expect HDMC operating income margin of 14.1% to 14.6%. We believe the anticipated positive impact from pricing and the cost productivity efforts within the supply chain will offset expected cost inflation and currency headwinds. We expect HDFS operating income to decline by 20% to 25%. At this time, despite the continuation of higher losses in Q1, we are holding to our original guidance. There is risk that losses could stay high throughout the year. However, we have several actions underway that should help to improve the total annualized realized losses, including increased investment behind collections and stronger repossession efforts. We believe it is prudent to keep deeper into the core riding season to assess the impact of loss rates for the year. There is no change to our LiveWire segment guidance. We continue to expect unit sales between 750 and 2,000 units and an operating loss range of $115 million to $125 million. This forecast incorporates the updated launch timing on the new Del Mar product. And lastly, for total HDI, we continue to expect capital investments of $225 million to $250 million as we continue to invest behind product development and capability enhancement. Through the first quarter, we have seen cost inflation generally in line with our expectations and continue to expect in aggregate about 2 to 3 points of inflation compared to 4% in 2022. Labor and warehousing costs continue to be the primary drivers of inflation with the deflation of moderation expected within logistics, freight, and raw materials. We have continued to see improvements in supplier performance, which is also contributing to efficiency across the supply chain, and we remain on track to deliver our in-year cost productivity goal. From an annual cadence standpoint, we expect high-teens revenue growth in the first half for HDMC as well as high-teens operating margin as we lap the production shutdown from last year. We expect HDMC back half revenue and operating income to be down year-over-year as we get back to more normalized production and seasonality compared to what we experienced in 2022. For HDFS, we expect the operating income declines to moderate in the back half of the year as loss rates come down in line with historical seasonality patterns, and we begin to lap the interest rate increases in 2022. As we look to 2023 capital allocation, our priorities remain to fund the growth of the Hardwire initiatives, which includes the capital expenditures mentioned previously, paying dividends, and executing discretionary share repurchases. In summary, we are pleased with the resiliency of our financial results through the first quarter despite a challenging retail environment, and we remain focused on achieving our targets throughout this year.

And your first question comes from Robbie Ohmes of Bank of America.

I will try to consolidate my question and stay within the guidelines. My question pertains to the shipments in the first quarter, specifically regarding the dealer network in North America. Did we see an increase in shipments in the first quarter? The dealer inventory levels ended at 45,000 units—does that align with your desired range for dealers? Additionally, how do you foresee the riding season progressing, and what should we consider regarding dealer inventory levels as this year unfolds? I understand that customer attitudes in the current economic climate may be shifting. Could you clarify how we should approach our outlook for the rest of the year, given that circumstances are continuously evolving?

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

So with regards to where we see the inventory position as we ended quarter 1, we are in a much healthier position than we were last year than we have been for a couple of years, quite frankly, as we enter the height of the riding season. We feel comfortable that we have the right levels to support the riding season in the all-critical Q2 and Q3 while remaining below what we think were damaging levels of inventory in prior years, 2019 and before that. We tracked it very closely, as you can imagine, in terms of both the family, the mix, but most importantly, the metric around MSRP realization, and as was noted in the prepared comments, this remains within the band that we consider desirable, plus or minus 2%. So we think we are set up properly for the bulk of the season as it comes in Q2 and Q3. Now with regards to your question on the overall sentiment of the consumer and what we're seeing in retail dynamics, I mean it is obviously clear in an environment of rising rates and inflation that there is some moderation in customer behavior. And I think we saw that also in Q1 since it was also very early in the riding season. However, overall, we continue to emphasize the message around affordability, focusing on monthly rates. We continue to drive traffic into the dealerships where we think we have the best chance of allowing our dealers to work with each individual consumer on finding the right bike for them. And we continue to emphasize the right tools for our channel partners as well as for HDFS to allow each individual consumer to find the bike that is best suited for them. So we think with all of these pieces in place, we have the right tools to support the riding season and to retain flat to slightly positive retail outlook for the year.

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

Gina, I have a farewell gift for you, which is a math question.

Love it. Okay.

I'm looking at your Slide 17, which is helpful as it indicates approximately 23,000 fewer wholesale unit shipments compared to 2019. Based on that, it seems shipments would be around 190,000 bikes. However, you also mentioned that wholesale shipments are up year-over-year, suggesting a number greater than that. While the difference isn't significant, I'm trying to clarify your wholesale shipment expectations for the year.

What we've said that's embedded in our guidance of that revenue growth of 4% to 7% is roughly, call it, 1 to 2 points of wholesale unit growth. So take where we landed there in '22 and 1% to 2% ahead.

To what extent do you think retail came in a bit lower than expected in Q1? How can you maintain your shipment guidance despite a softer start to the year?

Yes, we are optimistic about our expectations for Q2 and Q3. As previously mentioned, we anticipated decreases for Q1 and Q4 compared to last year, while Q2 and Q3 were expected to show positive results. Various factors are contributing to our outlook for these quarters, including the launch of new products, the recently announced CVO, and an upcoming anniversary event. Additionally, it's important to remember the production suspension we experienced last year during Q2 and Q3. We are quite confident that the growth we anticipate for Q2 and Q3 will materialize.

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

I guess first question, just a follow-up on Craig. Maybe kind of give us what you're seeing so far in terms of retail in April? Obviously, you have easy compares, I guess, in May and June. But I'm curious what you're seeing so far in Q2.

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

Okay. And just a follow-up on an earlier question regarding inventory. Obviously, you're in a much better position than you were, call it, four years ago. And I think I asked this question on the last call, but you guys expect some modest pipeline still this year. I don't know how you define modest, but is it, call it, 3,000 to 5,000 bikes that you expect to end the year higher versus '22?

Joe, this is Gina. I'm not going to provide a specific number, but I believe the sentiment is accurate. As we approach this year, we finally feel like we are returning to healthier inventory levels—still not the best, but certainly an improvement. Therefore, as we wrap up this year, we believe there is still some opportunity to increase our inventory a bit.

And what we have to bear in mind, if we consider the end of the year that we are obviously prepping up for '24 and that decision we will make later in the year of how many bikes we're going to pre-produce in order to be ready with the '24 riding season or with '24 as a calendar year. So bear that in mind as well.

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

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

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

And to be clear, the flat to slightly up is both wholesale, which I think you said you're going to get a couple of points for, but also retail, ultimately?

That comment is primarily referring to retail, but yes, if you do the math, it would indicate that it applies to wholesale as well.

Your next question comes from the line of Gerrick Johnson with BMO Capital Markets.

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

Yes. Thank you very much for the question.

Go ahead.

Let me just maybe characterize the Q1 component, and then I'll turn it back over to Jochen to give you the sense for the overall strategy. So we took a very deliberate decision at the start of this model year to release our anniversary bikes in a different cadence than historically in the previous anniversary years. We want to maintain that level of excitement throughout the year. We think it's really important that we also have a lot of excitement around our anniversary event in Milwaukee this summer. So we have staggered the launch of the products throughout the year to make sure that we have a little bit of excitement and traffic building activities in the dealership related to that anniversary deliveries throughout the year. So certainly a different cadence, but we think one that will support traffic and will support excitement throughout the bulk of the riding season. And then the same thing, I think will go for our CVOs. It was a significant impact as we talk about retail trends in Q1; it was a significant impact as we compare to prior years, but it allowed us, I think, to have an extraordinary reveal or initial reveals yesterday that will continue throughout the year. And maybe I'll turn it back to you, Jochen, to talk a little bit more about the CVO launch.

Yes, I don't have much to add. Thank you, Edel. We are timing our bike launches based on what we believe will create excitement throughout the year, focusing mainly on the first half. The timing is also influenced by when the bikes are ready for manufacturing and engineering. Overall, we believe this timing is advantageous for us, and our goal is to maintain and build excitement throughout the riding season, which we are confident we will achieve based on the initial feedback we've received on the launch video of the new CVO.

Okay. That sounds great. And there's a new motorcycle segment called Lightweight. So what models are in that?

Go ahead, Edel.

That includes our HD 350 and 500 launch in China as well as in North America; it accounts for the Riding Academy bikes.

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

Just on the credit loss rate, 3.2% in the first quarter. Could you kind of help us understand what normal seasonality looks like from a loss rate percentage? And then just how you're thinking about the guide relative to that rate as you progress through the year. How should we think about kind of that rate as it relates to potential need to adjust the guidance?

This is David. First, it's important to note that the realized credit losses in the first quarter were similar to those in the fourth quarter, with $52 million in Q4 and approximately $52.6 million in Q1. The dollar amounts were close, but the percentage was slightly higher due to a decrease in receivables balance. The HDFS loan portfolio has significantly more seasonality compared to a standard auto loan portfolio. Typically, during the riding season, we observe timely payments, with delinquencies peaking late in the riding season into Q4, which ultimately results in credit losses in Q1, as we've seen over the past couple of quarters. It's crucial to identify what caused the rise in losses. Delinquencies are not particularly high and remain within the range we've observed over the last decade. However, there's a subset of borrowers who have defaulted, and the repossession industry has been weakened. Last year also saw a drop in retail bike values. Many individuals left the repossession industry during COVID, leading to higher severity of credit loss due to these lower residual values on bikes. Looking ahead, we anticipate that the loss rate will decrease through Q2 and Q3, which should naturally lead to a lower loss rate for the year. As Gina mentioned earlier, we've been working on several initiatives, including enhancing our origination strategy, adjusting score cutoffs, and lowering loan-to-value ratios. We've also improved our servicing efforts with accelerated calling and texting for late-stage delinquencies, along with enhancements to our repossession strategy to lower loss severity. All these factors lead us to believe that we can maintain our guidance for the year. Gina, do you want to add anything?

When you mention a lower annual rate for the year, it is lower than the 3.2% that we reported in Q1. We included a slide in the presentation, Slide 12, to provide everyone with an understanding of the historical seasonality that David discussed.

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

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

Gina here. From a raw material perspective, we don't purchase many raw materials directly; instead, we acquire gadgets and components from suppliers. Therefore, hedging doesn't present a significant risk or opportunity for us regarding raw materials. Looking ahead to the rest of the year and considering what we experienced in Q1, we've noticed that metal markets have declined. They fluctuate somewhat, but we've adjusted our forecasts for the rest of the year. We anticipate logistics rates will remain low, much lower than last year, especially in ocean freight. As we mentioned last quarter, we are still observing inflation in labor rates and warehousing. Overall, our inflation outlook for the year remains consistent with what we discussed last quarter.

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

Yes. I think a couple of things, I mean, as you stated, as we look at the first quarter here, in particular, I think, largely in line with our expectations, as we stated the macro environments contributing to that. But I think as we look at the long term, of course, is the important part for us to stay on track is to just continue with the product development and then continue to grow units. And key to that, of course, is the product development on the Del Mar side, which we just released this past week. And we're quite pleased with the reception for that bike; it's obviously a very important strategic pillar for us going forward. And then, of course, the introduction into Europe. So we think with the two of those things, we continue to get greater scale, which, of course, improves the overall economics. So the combination of that and then obviously the starting cash position and our burn rate at this point. We're comfortably able to continue with our plan and stay on track.

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

Yes. Even at the low end of that guidance, we'll be at a similar cash burn. So we'll still be on track and within the parameters of the plan.

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

Just a quick question on the new versus used pricing gap. Could you talk about what you're seeing this year in terms of that gap and how it might have changed with used values taking a pretty big drop to start this year versus prior years? And then maybe also talk about just the availability of used inventory in the market right now.

Thank you for the question. We are definitely observing some moderation in the price gap, but it remains above historical levels overall. The dynamics in both the used and new markets are different this year compared to past years, primarily due to the increased availability of new vehicles. We anticipated some of this shift, and it is indeed happening. The used market is a crucial element of our overall ecosystem, and maintaining a healthy used market is essential for fostering growth in the new market. This year presents a different dynamic than previous years, but overall, we believe the situation is healthier than what we have seen historically.

Okay. Great. And just the availability of inventory there? Are you seeing anything more entering the market? Or is it in line with prior years?

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

And bearing in mind that especially now for the first quarter, much healthier new inventory is available in the dealerships.

You have a follow-up question from Robbie Ohmes of Bank of America.

I think this is for you, Gina, since this is your last call with us, and you will be missed. I was hoping you could discuss the gross margin outlook for HDMC. The EBIT margin guidance you provided for the first quarter suggests some moderation. The gross margin for HDMC in the first quarter was impressive. Could you help us understand how we should think about gross margin trends following that remarkable first quarter gross margin over the next quarter and the subsequent three quarters within the guidance?

Thank you for the question. The first quarter is expected to be our strongest margin quarter. We experienced favorable conditions with strong unit deliveries and a positive mix of those units. From a pricing perspective, we are still benefiting from model year '22 pricing implemented midyear in some markets, in addition to model year '23 pricing. Productivity is also on track, which has helped offset the cost inflation we're facing. As the supply chain has begun to stabilize, we noticed a significant decrease in expedited shipping rates during the first quarter. All these factors contributed to our substantial margin gain. Looking at the rest of the year, we remain comfortable with our guidance. While some of the positive factors, like the mix, were strong in the first quarter, we expect them to moderate in the latter half of the year, ultimately finishing slightly positive for the year, though not as strong as in Q1. The same applies to pricing; Q1 had the most significant impact, and we will start to see the effects of model year '22 pricing in Q3 and Q4. Thus, pricing remains positive for the year, but its impact will diminish over time. A significant challenge, aside from cost inflation in the first half, will be foreign exchange, which should become more neutral in the latter half of the year. Overall, the margin guidance is skewed toward the first half, with some margin growth anticipated in the second half, but it will clearly be more focused on the first half.

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

I have two follow-up questions. Regarding HDFS, you mentioned that the 3.2% rate is expected to decrease over the next two quarters. What does that figure need to be for the year to align with your guidance for HDFS? It seems that the 5.1% provision rate is a significant factor in this. On the retail side, you've indicated that launch timing might have had a negative effect on retail. Although wholesale remained relatively stable and there was a slight increase in inventory, some of the retail advantages may not appear until the second quarter. I would appreciate it if you could elaborate on this as I consider how you have described retail, particularly regarding timing and consumers’ mindsets. While the latter is quite challenging to predict, perhaps the timing aspect is easier to clarify.

Sure, James. I'll address the first part of your question, and then I'll pass it over to Edel. Regarding HDFS, we began at 3.2%. While I can't provide an exact figure, I can say that our guidance includes a projected loss rate in the mid-2s for the year. That’s what we believe we can manage within the levels we've outlined.

In response to the retail question, I wouldn’t say we have significantly shipped more in wholesale compared to what we anticipate in retail. We do have a healthier inventory position as we enter this riding season. Regarding anniversary models, CVOs, and some of our new models, this is different from previous years. In the past, we might have had all that inventory at the dealerships at the beginning of the riding season. Now, we are intentionally distributing that inventory throughout the year. As we progress through Q2 and Q3, you will observe both wholesale and retail activity for anniversary models, some new models, and CVOs, which will arrive in the latter half of the year. The overall flow of how the product is being dispersed through the network is quite different from our historical practices. I also want to emphasize the point about the Sportster that Jochen mentioned earlier. This product is being phased out, and while there are still some retail sales, they are considerably lower as we transition from that product. We expect that over time, our RevMax platform will develop to match some of that volume. This situation was certainly a factor in Q1 and will continue to change throughout the year. Overall, it’s less about positioning wholesale versus retail; instead, the flow appears quite different than what we've done in the past.

That's really good color. And Gina, good luck at your next stop.

Thank you.

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

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

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