Harley-Davidson, Inc. Q1 FY2025 Earnings Call

Thank you for standing by, and welcome to the Harley-Davidson 2025 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 today will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in today’s earnings release and in our latest filings with the SEC. Joining me for this morning’s call are Harley-Davidson Chief Executive Officer, Jochen Zeitz; also Chief Financial Officer and President of Commercial, Jonathan Root. And we have LiveWire’s Chief Executive Officer, Karim Donnez available for questions. With that, let me turn it over to our CEO, Jochen Zeitz. Jochen over to you.

Thank you, Shawn. Good morning, everyone, and thank you for joining today's call. HDI operating income margin for the quarter came in at 12.1%. Our bottom line performance was better than expected, driven by strong product mix, tight cost control in logistics, supply chain and in our operating expenses as we left significant spend related to our model-year 2024 touring launch. Global retail sales were down 21% in Q1 and down 24% in North America, softer than we expected primarily in the US market, driven by historically low levels of consumer confidence in the uncertain macro environment. With the decision to roll out our model-year 2025 campaign later in the year in the US to be closer to the riding season, the majority of our marketing development fund is being allocated in Q2 and beyond to support the network well into and beyond riding season. The Marketing Development Fund is the most significant co-marketing investment made in the company's history, where we believe this investment will be most effective in the current environment, closest to the sale with our dealers. Outside of North America, EMEA experienced a quarter with overall retail being down just 2%. The APAC region experienced a 28% retail decline driven by softness primarily in China and Japan. And lastly, LATAM saw a 6% decline year-over-year in retail. As we move forward through this macro uncertainty, we remain committed to managing wholesale shipments in order to maintain reduced levels of inventory. At the end of Q1, global wholesale shipments were down 33% and dealer inventory was down 19% compared to the end of Q1 last year, with US inventory being down 23%. Turning to HDFS. Our financial services business delivered a better-than-expected result with an increase of 19% in operating income for the quarter. Jonathan will provide some additional detail on how we believe there are opportunities to further leverage the strength of HDFS to benefit our customers, dealers and shareholders alike. Looking to product, in addition to our 2025 model-year launch that we detailed at the last quarterly call, Harley Davidson's Champions on-road performance is a key differentiator for the brand, underpinned by our customers' desire to take inspiration from the track onto the street. As we continue to look to racing for inspiration, in early March, we launched a new limited production Harley Davidson, the CVO Road Glide RR, setting a new benchmark for street-legal performance bagger as the most powerful and dynamic on-road production motorcycle ever offered in the company's 122-year history. Leveraging knowledge and components developed by the Harley Davidson factory racing team competing in the King of the series, the CVO Road Glide RR combines exceptional performance with attention to custom detail, a hallmark of Harley-Davidson CVO limited production motorcycles. Production of the RR model will be limited to 131 hand-assembled serialized motorcycles available through select authorized Harley-Davidson dealers in the United States this year. We've seen an outstanding response to this launch across the network, and we do expect these to sell out from preorder. Last quarter, we ceased the next installment of entry-level product, something that we are very excited about having been several years in development. Since '21, the strategic pillar of our hardware strategy has been selective expansion and redefinition, expanding our Cruiser offering into smaller displacements, including a true entry-level Cruiser has been a focus in our clients. I'm pleased to confirm that we are planning to introduce new entry-level products in smaller displacements as well as the introduction of an iconic classic for the US and international markets starting next year. We expect these products to be highly affordable and profitable additions to our portfolio informative to the company's future growth. Turning to LiveWire. As already highlighted in February, the headwinds facing the broader powersports and discretionary leisure industry are even more complicated in the EV segment of the market. All signs are pointing to a much later EV adoption than originally anticipated. Given the lack of incentives and a notably less favorable regulatory environment, combined with a slower expansion of charging infrastructure. In that context, Harley-Davidson is evaluating all options for its investment in LiveWire, while LiveWire will continue valuing all options for its business, including seeking external capital if and when needed. In addition, LiveWire plans to drive additional significant cost savings to reduce cash burn and operating losses with the intention to get to a sustainable business model with existing funds available. Harley-Davidson does not plan to provide additional investments into LiveWire beyond the line of credit agreement entered in Q1 2024 of up to $100 million. With increased focus on cost and cash, LiveWire now expects 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. Turning back to Harley-Davidson. With the level of uncertainty we are seeing and the number of changes happening on an ongoing basis in global tariffs 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. We therefore are withdrawing our previous 2025 guidance until there is more clarity over the economy and tariff landscape. 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. That said, our teams are working extremely hard to mitigate the impact in 2025 given the fluid tariff environment, while we are also focused on mitigation strategies to minimize potential longer-term impacts to the company. And with that, I'll hand it over to Jonathan.

Thank you, Jochen, and good morning to all. In my role as President of Commercial, I would like to expand on Jochen's comments regarding the continued development of a robust product portfolio. In addition to a new small displacement motorcycle and the introduction of an iconic classic cruise starting next year, we also plan to introduce more innovation in our touring and trunk motorcycle platforms, all a reflection of the execution of the hardwire strategy for future years. 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 from new, in look, sound, and performance and the new large cruisers are delivering excitement capability and performance refreshes to our lineup this year. Additionally, based on much feedback, we will begin to shift the model year timing to the fall to create additional selling opportunities later in the year. 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. Of the 594 global dealers identified as requiring a fuel upgrade, either has been completed or are in process at this point, which is on track with our original 10-year time horizon. We have also refined our flexible rewards program to improve its attainability and attractiveness and as you heard from Jochen, we introduced the marketing development fund to put dollars where we believe they have the most effective results. 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. As part of the hardwire, 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 HDFS if the following transaction objectives are met. First, any arrangements would demonstrate the class-leading returns of HDFS as a driver of value for HOG shareholders by proving out a significant premium valuation versus book value. This is all made possible as HDFS is the highest returning transportation-related captive finance company in America. Secondly, an investment must establish a value-enhancing long-term strategic partnership. Thirdly, an arrangement must lead to securing long-term funding optionality that would maintain and perhaps even lower the overall cost of funding and improve the competitiveness of our offers. Lastly, we commit to maintaining and even improving service levels and support across the range of retail finance, commercial finance card products and insurance and protection products. Later on in my remarks, I will go further into the Q1 financial results and fundamentals of the HDFS business. I plan to start on page 4 of the presentation, where I will briefly summarize the consolidated financial results for the first quarter of 2025. Subsequently, I will go into further detail on each business segment. As Jochen already mentioned, consolidated revenue in the first quarter was down 23%, largely in line with expectations across HDMC and HDFS, while revenue also decreased at LiveWire. Consolidated operating income in the first quarter was $160 million, driven by a decline of 51% at HDMC. This was partially offset by an increase of 19% in operating income at HDFS. At the LiveWire segment, the operating loss came in at $20 million. Consolidated 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 of lower volume as we deliver on our commitment to help bring down dealer inventory. I plan to go into further detail on each business segment's profit and loss drivers in the next section. First quarter earnings per share was $1.07. In Jochen's remarks, he addressed retail sales and market share. Note the change in market share; we are now reporting on the total cruiser category given our future product plans in small Cruiser. Furthermore, there are competitive dynamics on products that shift between large and small cruiser throughout 2024. Moving on to dealer inventory. We believe current dealer inventory and product availability are in an improving and healthier position overall as we approach the upcoming spring 2025 riding season. This is important with the recent launch of new model year 2025 motorcycles, especially with the redesigned Softail motorcycles introduced earlier this year and year two of new touring motorcycles, which were first introduced with model year 2024. 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. Looking at revenue, HDMC revenue decreased by 27% in Q1. Focusing on the key drivers for the quarter, 30 points of decline came from decreased wholesale volume at HDMC, where motorcycle shipments in the quarter were down 33%, coming in at 39,000 units compared to 58,000 units in the year-ago period. This level balances our need to be prepared for the upcoming riding season and the potential for a softer demand environment given recent macro headlines and uncertainty. Two points of growth came from favorable year-over-year pricing for 2025 model year product and net sales incentives. Two points of growth came from the mix as we continue to prioritize our most profitable models and markets. Finally, foreign exchange impacts resulted in a 1 point decline to Q1 revenue relative to the prior year. In Q1, HDMC gross margin was 29.1%, which compares to 31.2% in the prior year period. 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%. 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. The lower production volumes resulted in a higher fixed cost per unit on motorcycles shipped in Q1 2025. The unfavorable impact of lower operating leverage was modestly offset by other productivity savings related primarily to supply management during the quarter. Operating expenses in Q1 came in $24 million lower than the prior year at $199 million, which resulted in an HDMC operating margin of 10.8%, which compares to 16.2% in the prior year period, which included the fill of the all-new Street Glide and Road Glide motorcycles. Before we turn to the next slide, I would like to give a brief update on our ongoing productivity cost program, one of the initiatives identified as part of the Hardwire strategy, where we were expecting to drive a $400 million improvement in productivity by 2025. As a reminder, for the cumulative three-year period of 2022 through 2024, we achieved unlevered productivity savings of $257 million. We expect to achieve another $100 million in 2025 and again, in 2026, exceeding our hardwire dollar target by over 10%, but doing so one year later than anticipated, as mentioned in February. In Q1, we achieved $24 million of unlevered productivity, primarily from logistics and supply chain initiatives. Also to address what is on many people's minds, tariffs. The Q1 direct tariff impact for HDMC was limited to $9 million. Harley-Davidson is a business very centered in and around the US. Three of four manufacturing plants are US-based, including final assembly in York, Pennsylvania, and powertrain operations and injection molding with class-leading paint application each in Wisconsin. We also have a US-centric approach to sourcing with approximately 75% of component purchasing coming from the US and all of our core products sold in the US are assembled in the US. With that in mind, we estimate our 2025 impact from new tariffs to be in the range of $130 million to $175 million. We have a number of actions underway to mitigate the impact and the situation will remain fluid given the uncertainty that still exists. Turning back to HDFS's 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. HDFS operating income was $64 million, up $10 million or 19% compared to last year. The Q1 increase was driven by a lower provision for credit losses and lower operating expenses, while interest expense was flat in the quarter. The provision for credit loss expense was $8 million lower as a result of a favorable reserve change and overall credit losses. The reserve change was $7 million favorable compared to Q1 of 2024, primarily on a decrease in the retail receivables. In Q1, HDFS' annualized retail credit loss ratio was 3.8%, which compares to 3.7% in the year-ago period. Retail credit losses were $2 million less year-over-year. However, lower retail receivables resulted in the small increase in the retail credit loss ratio. Retail credit losses continue to be driven by several factors relating to the current macroeconomic environment and the related customer and industry dynamics. In addition, the retail allowance for credit losses for the first quarter remained flat at 5.7% for Q4 of 2024. Total retail loan originations in Q1 were down 22% while commercial financing activities were also down, decreasing 14% to $1.3 billion. Total quarter-end net financing receivables, including both retail loans and commercial financing, was $7.4 billion, which was down 6% versus the prior year. For the LiveWire segment, electric motorcycles revenue decreased in the first quarter of 2025 compared to the prior year period, driven by lower unit sales of LiveWire electric motorcycles and static electric balance bikes. Selling, engineering and administrative expenses were $7 million lower compared to the prior year. LiveWire operating loss of $20 million was in line with our expectations and compares to an operating loss of $29 million in the prior Q1. In terms of net cash used during the quarter, LiveWire used $18 million in Q1 of 2025 or $9 million less relative to Q1 of 2024. On a unit basis, LiveWire reported sales of 33 units in Q1 compared to 117 units sold in the prior Q1. The uncertain macro environment is weighing on the consumer's discretionary appetite for early-stage EV products. 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 period. The increase in operating cash flow was due largely to lower net cash outflows for wholesale financing compared to Q1 of 2024. Total cash and cash equivalents ended at $1.9 billion, which was $467 million higher than at the end of Q1 prior year. This consolidated cash number includes $46 million of LiveWire. Also of note, as Jochen indicated, Harley-Davidson does not plan to provide additional investments into LiveWire beyond the line of credit agreement entered into in Q1 of 2024 of up to $100 million. 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. As Jochen already mentioned, we are mindful of the overall macroeconomic and tariff environment uncertainty and significant softness in high-ticket consumer discretionary spend. Although we feel positive about the trajectory of our internal operations and overall operating efficiency displayed in Q1, we are withdrawing our 2025 financial outlook or guidance that we shared in early February. Specifically, the metrics on slide 15 of our Q4 2024 earnings presentation as covered on February 5, 2025. In regards to items that we can control, we look at capital allocation for the rest of 2025, where our priorities remain to fund profitable growth of the Hardwire initiatives, which includes a slight reduction in capital expenditures, which is now a range from $200 million to $225 million, paying dividends, and continuing to execute discretionary share repurchases. We will continue to monitor our business performance and cash flow and determine discretionary share repurchases based upon our cash flow. This will be determined in consideration of our plans to deliver on our $1 billion in share repurchases by the end of 2026, which we announced in July of 2024. As covered previously, in the three-plus year period from 2022 to 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. While shareholder returns for US discretionary leisure and powersports peers have been mired in a prolonged cyclical industry downturn over the past several years, we would like to reinforce some recent information we have released; HOG stock has outperformed its peer group. From a total shareholder return basis, which includes dividends, as of mid-April, HOG has outperformed its peers by 10 percentage points over the past five years since May of 2020 and by 3 percentage points over the last three years and by 7 percentage points over the last year. In wrapping up, as we continue in 2025, we remain committed to delivering on behalf of all of our stakeholders. We are dealing with a challenging macroeconomic environment and dynamic tariff circumstances and we are pleased with the resilience and resources displayed by our Harley-Davidson team members and dealers. And with that, we will open it up to Q&A.

We will now start the question-and-answer session. Your first question comes from Craig Kennison with Baird. Craig, please go ahead.

Hey thanks. Good morning. Regarding HDFS, what might the economics of a long-term strategic partnership look like for Harley-Davidson?

Hey Craig, good morning. This is Jonathan. So, thank you for your question. Certainly, as we work through anything from an HDFS perspective, we feel like we're in pretty early stages from a discussion standpoint and where we go. I think consistent with the messaging that we've put out relative to the HDFS transaction, we feel like paying attention to questions that we get from investors from time to time around how to value that business. 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 has asked for. So, that's 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 regardless of the dynamics of the economy and situations that we may be in to really ensure that we can maintain our class-leading returns, maintain really attractive offers for our customers and for our dealers. So, that sort of falls into the next piece. And then obviously, as we look, we do envision continuing the product portfolio robustness that HDFS offers. So, that's something that would continue long-term. Relative to how any of the financials could be impacted sort of 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 a more detailed answer to that question as we come together next quarter.

And just as a follow-up, Jonathan, like what has changed from, I guess, a prior conclusion from management that HDFS was strategic? Is it that you think you can hang on to some of that strategic value getting a more realistic market valuation of what that business is truly worth? Or was there something else driving this change of heart?

Yes. No, I think that's absolutely it. It is really ensuring that we can give kind of a market-based view on the value of that business. It is something that we do envision kind of 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 HDFS and the strategic importance of that business. So, from our perspective, we feel like it's probably good governance, 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 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 news somewhere and we know that it appeared. And 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.

Thanks. Hey, guys. Good morning. So Jonathan, I want to go back to your answer to Craig on the HDFS sale. I don't want to put words in your mouth, but it sounds like the genesis of this is you guys don't feel like you're getting full value of your stock for this business, not that a separation would benefit HDMC. Is that fair?

Yes. I think that is fair. Again, we certainly believe in the strategic nature of HDFS. I mean, 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's 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, the elements we've called out a couple of times here are elements that we do envision we would still be able to display going forward.

What we are discussing today has been part of our strategic evaluation over the past few years. We are not implementing anything new; our goal has always been to enhance our business outlook and increase shareholder value. This is part of our overall strategic plan, and we see no reason to stop that effort. We believe there is a worthwhile opportunity to evaluate now. Regarding timing, I cannot comment since I am not part of the independent directors' committee overseeing the search. However, I know the process is progressing steadily, led by Heidrick & Struggles. I am dedicated to leading the company until a successor is appointed, but the exact timing is up to the Board.

Okay. Understood. Thank you.

Good morning, and thank you for taking my questions. I'd like to discuss the impact of tariffs, particularly the various sources of these tariffs. China seems relatively straightforward, but I'm unsure if there's a way to reduce the tariff rates from Mexico. It appears that compliance with USMCA is crucial for that. When it comes to Canada, could you help clarify some points? I understand the EU has paused its tariffs on our products, but it gets complicated, especially regarding whether Thailand would face tariffs in the future. Additionally, I'm curious about the growing anti-American sentiment and whether you view that as a significant risk moving forward. I realize this is a complex situation, but it's unprecedented, and I appreciate your insights. Thank you.

Thank you, James, for your question. I appreciate the opportunity to address this. As Jonathan pointed out, it's worth noting that all of our core products are made in the US, contributing to 95% of our total revenues. Therefore, from a manufacturing standpoint, the US is not a concern. Europe presents a different situation. Based on our understanding of ongoing trade negotiations, we might be included in those discussions, which means that some of the higher tariffs previously applied by Europeans on goods like liquor and motorcycles could be exempted. This is contingent on current information we have regarding the trade deal negotiations. While manufacturing in the US is a minor consideration, the real challenge lies in sourcing. Currently, about 75% of the raw materials and components we use are sourced domestically, which is higher than many auto manufacturers in the US. However, like others in the automotive sector, we are exposed to China, particularly due to the significant 145% duties, which translates to an estimated impact of $75 million to $100 million out of total mitigation needs of €130 million to €175 million by 2025. Therefore, establishing a trade agreement with China is essential. Although our overall expenditure linked to China is under 6%, the 145% tariffs create substantial challenges. We have been actively relocating product components out of China since 2018, and we will continue to do so. It’s a gradual process, but it's part of our strategy. Overall, we believe we are in a strong position compared to many of our competitors, despite these challenges.

Yes.

That’s helpful.

And James, I would just add a couple of points, too. As you go through and you look at what we've included in the picture through 2025 in our little chart that kind of lays out the impact, we've proactively thought through where do we ship products in ahead of time? Where do we try to make sure that we mitigate exposure in the current period, 2025 is the current period. And so as we work through that, that's why that number is contained in the way that it is. And then as Jochen talks about, the situation remains very, very fluid and certainly feels a little bit different from one day to the next, which is really where all of these lands as we start adding up the significant variability that that could depending upon where things land. Our range could be wider than even what we put on this on our table. But as we really try to fill this down to provide a best picture we can, we think this is most likely with what we know today, 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.

And James, in terms of sentiment, we haven't really experienced something that we would consider significant, just like some in auto have experienced, but I think people can differentiate between us being Harley-Davidson and tariffs overall that governments impose. So I would say that is, at this point in time, not an issue. People can differentiate very well. And our business in Canada to take an example has not suffered as a result.

That's really helpful. Regarding the demand question, the guidance was withdrawn. I'm trying to understand how much of that is related to the tariff situation and the potential changes in tariff numbers compared to the business outside of tariffs. It may also help to distinguish between the environment around liberation day, which was essentially your first quarter, and the period following liberation day. Could you share what you've observed in terms of demand trends, particularly in April? If that's not possible, how do you perceive the current mindset of consumers regarding your product?

Yes. I mean, as we've just completed April, I usually don't talk about the running month, but this is now completed because we are a little later than usual with our earnings. So if you look at February, March, April in North America, we've seen sequential improvement from February to March and April. So April has actually not deteriorated, but slightly improved or you could say significantly improved versus March, and March looks better than February. Internationally, it's pretty much the same, as I mentioned in my remarks, opening remarks; the international markets were pretty much in line with maybe one exception in Asia, with our expectation. We always said going into the year, our comps get much easier in the second half of the year. And as we are letting our substantial touring launch, in particular, in North America, those are tougher comps to crack, and that will take a little bit of time. But that's basically what we're seeing, especially in the US, our most important market improvement versus March versus February.

That's really helpful color. Thank you.

Thank you. I want to revisit the financial services discussion. Over the years, it seems like HFS has acted as a marketing arm for Harley, particularly since their products are never on sale and the financing offers are a significant aspect. Most of H.O.G. is financed through HDFS, which has played an important role in Harley's overall earnings each year. I'm curious about what has changed recently that would justify a sale. It appears that the factors that previously made it illogical to sell are still relevant today. I'm just wondering what differences in the environment or your expectations make this seem like a viable option now.

Yes. Thanks, Robin. We didn't say that we are planning to sell HDFS. In fact, we wanted to clarify a rumor that's out there that said we would. That's not the case. Having been around a little bit, especially in the times of the financial crisis, there was a lot of pressure on the business to sell HDFS. The Board felt at the time that it would not be a good idea, and we all believe that this is still not a good idea. But that said, there's significant value that we are not being appreciated for as a business. And 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 that's part of our overall strategy and that's what we were trying to convey with our remarks. So, there is no sale of HDFS imminent.

Thank you for your insights. I wanted to follow up on your comments about the retail environment. You mentioned that conditions in April improved compared to March, but with the suspension of guidance, it's likely still not aligning with your previous expectations for the year. I also heard you mention an increase in marketing spend. Are there any other strategies you’re considering? While pricing positively impacted Q1, do you think you'll need to adjust it further in this current environment? I'm curious about what to anticipate as we approach peak riding season. Thank you.

Right. Yes, I think what I said in my opening remarks is important to bear in mind our touring launch; a very significant launch happened earlier in the year last year and significant funds were allocated early in the year, whereas we moved our marketing development fund later into the riding season and starting now. So there is a shift that you will need to bear in mind. And I think you've alluded to that already in our February call that we have tough comps to work against due to the touring launch and shift in new products that we've been launching and marketing as of now. So that is definitely a contributing factor. In terms of the promotional environment, I think it's interesting to see that some of our competitors have been blanketing the promotion for '24, some selectively already promoting '25. We had very targeted promotions in market, nothing for '25 as of 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, we would not draw much of a conclusion of us not giving guidance to better or worse. But as I said earlier, we'll be more or less in line with the international market when it comes to retail sales. Japan has been softer 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.

Yes. I would like to add to your question about pricing and mix. We started shipping Soft tails late in the first quarter, which affects our product mix. From an overall pricing and mix perspective, we might experience some pressure as we look at the remainder of the year due to changes in how we price different products. Additionally, we've noticed that consumers are somewhat sensitive to high-end discretionary items. Therefore, we need to carefully monitor our overall portfolio sales and product mix as the year progresses. It's also important to note, as Jochen mentioned, that some of our competitors are already discounting their 25 models, which could negatively impact our business in the long term. We are committed to being more disciplined in this regard, but it is something we will need to keep a close eye on. Thank you for your question.

One additional point to mention is our proprietary research on ridership. We've conducted research with both owners and non-owners, and the feedback indicates that 60% of non-owners and about half of our current owners believe the current economic conditions are causing them to postpone purchases. Non-owners need to see improvements in their personal finances before considering a purchase. The main concerns are interest rates and overall economic uncertainty. This strongly suggests that we need to witness a shift from a cyclical downturn to a stabilization, particularly with interest rates decreasing and consumer confidence returning, especially for larger discretionary items.

Okay. Great. Thank you.

All right. Thanks for taking my questions here. Just first, I wanted to ask what led the decision to bring back the entry-level bikes? Any sense on the pricing, the sort of look and feel of those units? Will they resemble prior models such as Iron 883? And then on the model launch timing shift, can you just give us a little more color on that? It seems like a pretty significant change in sort of the cadence of the business will model year 2026 launch this fall? How do you phase that in? That would be really helpful. Thanks.

I'm glad to address the first question regarding entry-level bikes. As part of our strategy, we've always emphasized selective expansion and redefinition, which warrants additional investment. In the initial years of our hardwire plan, we heavily invested in our core business because there was a lack of investment in areas like touring and cruiser models. As time went on, we gained the necessary capital to start investing in entry-level bikes. Historically, over the past 30 years, we've not had an entry model that generated profit for Harley Davidson. However, we see a current opportunity to engineer these new bikes to be competitive and aligned with the iconic look, sound, and feel of Harley Davidson while also being profitable. We are confident in this direction after making significant investments in our core business, which represents 80% of our overall profitability.

Hi, Alex. I want to discuss the timing for model years. As we adjust this timing, it definitely affects the entire company, including our dealer network and various activities we conduct. It will take several years to fully align everything back to the fall schedule. We have received considerable feedback from our dealers and customers who express enthusiasm for aligning key dates and special moments with a fall launch. We believe this approach will help us extend the season. From the dealers' perspective, this change will drive more traffic to their showrooms during the fall months when the foliage begins to change. We're confident that our dealers will appreciate this benefit. Regarding your question about the timeline, it is indeed a multiyear endeavor. It will require significant efforts from our engineering, supply chain, and manufacturing teams as we consider all the implications. Additionally, our marketing and commercial teams will have an increased workload as we focus more on marketing, dealer education, and training. It will be a significant effort in the year we implement these changes, starting this fall with some of our 2026 model year motorcycles. There is a lot of excitement surrounding this initiative. Thank you, Alex.

Hi. Thanks for taking my question. I guess just around some of the LiveWire comments that you made. Can you remind us how you're thinking about kind of like the annual cost savings that you're tracking toward going forward? And then as you look longer term, has anything changed in terms of your thinking around that business? Thanks.

Yes. Noah, as I indicated, LiveWire is projecting operating loss of €59 million and cash burn of €49 million, which is dramatically reduced from the previous year and to the original guidance LiveWire gave in February. So we continue to work down the cost, and that's on an EBIT level. What has changed is exactly what I've mentioned in my opening remarks. There are headwinds that are facing the broader power sports and discretionary leisure industry, but those sort of difficulties are even more complicated in the EV segment, which is due to the fact or is actually leading to EV adoption that's just not happening as 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. And the charging infrastructure and here, we very much rely on auto is expanding much slower than anticipated in some markets around the world where LiveWire is selling. And that's what led us to look into all options and LiveWire to do the same thing. And we are driving significant BOM cost reductions, bill of material cost reductions, which I'm sure Karim can maybe talk a little bit more about and additional cost savings to really reduce the cash burn and the losses in order to be able to get to a sustainable business model with the existing funds that are currently available. Karim, do you want to add anything to that?

Sure. Thank you, Jochen. So as you said, we've done tremendous progress in our cost savings efforts, and we continue to do so. Now we also recognize that we play in very specific segments of the EV market, and we continue looking at the addressable market that we took tap into where EV 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, and we've made a ton of progress, and we continue improving on our operating and cash burn going forward.

Thank you.

Good morning, everyone. Thanks for taking my questions. 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 is there at least some high-level discussion you can provide in terms of how you'd go about addressing that mitigation need?

Sure, of course. I think that overall, there are five things we are doing. First of all, we are engaging very actively with DC with the administration, and actually administration, not just the US administration, but also Europe, in particular, to ensure that there is a good understanding of our position and the impact that those tariffs have on our business at home and abroad. There's a lot of talk about auto, but we want to make sure that we are part of the discussion and the agenda. So that's critical. And I think there's a pretty good understanding of the impact, number one. So any future tariff deals set up to be made, should be including us, and that's incredibly important. So we are not left out. We've also divided mitigation into short-term, which Jonathan talked about for 2025 and longer term because you can't just shift and change supply chains overnight, and you got to make sure that there's some sort of 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 knowing what the longer-term tariff situation is going to look like. So short-term, we've been accelerating or slowing down shipments to navigate the tariff environment during the year, which is why the impact has already been much lower than what we would have seen in the current tariff environment. We are also making adjustments to our supply chain short-term where we can, and that will be diversifying so that we have more options but also reducing and building up new capacity elsewhere, which usually takes a little bit of time. And the most immediate focus is on our Chinese content given obviously the size of the impact with 145% tariff that are now imposed on it. We're also slowing down expenses overall without compromising product and marketing investments, as Jonathan alluded to, 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 products and to make sure that we remain competitive. So that is a bit of 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 not so much at this point in time, maybe selectively without significant price increases, at least in the short-term in the making. And that's pretty much what the team is working literally 24/7 on mitigating short-term and planning for the long-term.

And I guess you've talked about your U.S.-centric manufacturing footprint, our U.S.-centric sourcing approach. Do you foresee once the dust starts to settle around some of these tariff issues that this could ultimately result in a competitive advantage for you in the United States? And if so, could you talk about the extent to which that might be?

If tariffs remain high for imported motorcycles, it could provide a competitive edge since our main disadvantage has been that international competitors import bikes with little to no tariffs while we focus heavily on U.S. manufacturing. This could be a benefit, but encountering trade barriers in other regions like Europe would not be advantageous for us as we lack manufacturing there. Thus, what could be a positive might also have negative implications. Ultimately, we hope to come out ahead. From a U.S. perspective, trade barriers would certainly be beneficial given our manufacturing base. However, while we have a supply chain that is primarily U.S.-centric at about 75%, we still face significant challenges when even a few components are sourced from Asia with a 145% duty. It’s not feasible to make swift changes, so we are considering this as a long-term issue, and we have already begun addressing it over the years.

Great. Okay, thank you very much. Good luck.

Hey, good morning. Just one for me. So it sounds like with the model or at least some of the model year 2026 launches occurring in the fall. How does that change how we should think about kind of quarterly cadence relative to where you were last quarter? Thanks.

Thank you, Tristan. We're still finalizing details on our cadence. As you may have noticed, we have withdrawn our unit guidance and will refrain from discussing it further at this time. I anticipate that we will be able to provide more clarity in about 90 days, especially regarding the tariff environment and its secondary effects. We do not plan to use this as an opportunity to increase inventory shipments towards the end of the year. We've emphasized the importance of monitoring retail trends and aligning our wholesale activities accordingly. When we initially provided guidance in February, we aimed to manage dealer inventory carefully and do not intend to overload dealers with inventory. We will remain cautious about our shipments and focus on retail trends. Although it has been challenging, we find ourselves in a unique period and do not expect significant volume impacts for 2025. As we look ahead to 2026 and consider our cadence, we will share more information as we approach that timeframe. For now, we do not foresee substantial changes in the quarterly cadence. And I think, Tristan, what we've also said is that we are committed to our inventory reduction in particular, in the US for year-end, but also overall globally. So that stays, right? So that should be giving you a good indication that not much should be changing as a result of the model year shift.

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