Good morning. My name is Shelby and I will be your conference operator today. At this time, I would like to welcome everyone to the 2019 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mr. Shannon Burns, Director of Investor Relations. Please go ahead sir.

Good morning everyone. You can access the slides supporting this call at investor.harley-davidson.com. Click the earnings materials box in the center of the page. Adjacent to that link, you can find our More Roads to Harley-Davidson plan support materials. Our comments 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 our latest earnings release and filings with the SEC. Harley-Davidson disclaims any obligation to update information in this call. Joining me this morning are President and CEO, Matt Levatich; and CFO John Olin. Matt let's get started.

Thanks Shannon and good morning everyone. Our strategy is clear, route to build the next generation of Harley-Davidson riders globally. With our objectives through 2027, we're executing a plan to accelerate our progress through 2022 More Roads to Harley-Davidson. We're acting with agility and discipline to take advantage of rapidly evolving global markets. In the short eight months since we announced More Roads, we've built our capabilities and met each of our planned milestones. Our progress in near-term results reinforce that we are indeed on the right strategic path and what we're doing is working. The next generation of Harley-Davidson riders is emerging evidenced by new and different people who are taking interest in buying Harley-Davidson motorcycles today. The data tells us that 278,000 new riders joined Harley-Davidson in 2018 in the United States. This group is the most diverse across age, ethnicity and gender in all the years we've tracked this data. Of the total mix of new riders, 18 to 34-year olds women and/or ethnically diverse riders, comprised over 50% of the 2018 total and each segment's participation is up compared to five years ago. These results continued into 2019. Of the total U.S. new retail sales in Q1, the mix of 18 to 34-year olds was up 2.6 percentage points and the number of young people participating in Riding Academy and taking test rides was also up over last year. It's worth noting that while our intense focus remains on our More Roads delivery, it's also squarely on managing our business through the significant and very real pressures we're facing across the global motorcycle industry, including the impact of the ongoing trade wars. While these challenges require prudent management and attention, our long-term objectives remain our beacon and we're after them with unwavering commitment and determination. In…

Thanks, Matt. Our first quarter financial results came in a stronger than we anticipated, driven by higher shipments, and stronger operating margins than we had planned. We were encouraged by our retail sales performance in the first quarter, despite the adverse impact that our recent recall had on availability of our Street motorcycles. But we also remain cautious as we move into the height of the selling season. The summary for Q1 results is on slide 11. In the first quarter, motorcycle operating income was impacted by lower shipments, unfavorable mix, and incremental tariffs, partially offset by lower year-over-year SG&A, and lower restructuring charges. Financial Services operating income was down 7.6%. Consolidated net income was down versus prior year due to lower operating income. EPS for the quarter was $0.80. When excluding restructuring plan costs and the impact of incremental tariffs, EPS was $0.98. In the face of ongoing retail sales headwinds in the United States, we remain focused and disciplined on tightening U.S. retail inventories, aggressively managing cost, generating cash flow from operations and delivering strong shareholder returns over the long-term. On slide 12, Worldwide Retail sales of new Harley-Davidson motorcycles in Q1 were down 3.8% versus prior year. For the quarter, retail sales of Street motorcycles were slight -- were significantly impacted by limited availability following a re-call announced in January. Sales of Street motorcycles reassumed in late March, slightly ahead of our expectations. Excluding Street motorcycles sales, first quarter Worldwide Retail sales were up 0.4%. In the U.S., first quarter retail sales were down 4.2% versus prior year. The decline was driven by continued weak industry results, partially offset by gains in our Q1 market share. International retail sales were down in the first quarter, driven by very limited availability of Street motorcycles. While Q1 retail sales…

Operator: [Operator Instructions] Your first question comes from David Beckel of Bernstein.

Hi. Thanks for the question. I just had a question about your outlook for the remainder of the year. Has Q1 changed anything? And John, you had said I believe I have this right that you remain cautious heading into peak season despite a better-than-expected Q1. Is there any reason to believe that some of the drivers of improved sales in Q1 will not be as effective going forward? Thanks.

Thanks, Dave. First, before I answer Dave's question, in the prepared remarks I had mentioned on the gross margin bridge that mix was unfavorable impact of $26.9 million. On the slides and the actual number is $39.3 million. Apologize for that mistake. All right. Dave with regards to our outlook for the remainder of the year has anything in Q1 changed that? The answer is absolutely not. We had a very good quarter in the first quarter. Again came in better from a financial standpoint. And operating margins, we were looking -- expecting to be down six percentage points we came in down 3.6 points. The driver of that was largely with more favorable SG&A than we had anticipated as well as slightly more favorable mix. Even though mix was very unfavorable, it was more favorable than we intended. But our outlook remains the same. We expect operating margins to be 8% to 9% on a full year basis. And there was a comment that was made with regards to we're looking -- we're cautious as we move into the height of the selling season and are the drivers any different? The answer is, absolutely not. The drivers are not different. Matter of fact, we learned a lot in the first quarter. A lot of things that worked very well for us as we integrated the approach between our stronger dealers growth catalyst, as well as increased marketing investment. And a lot of that -- those things that worked well, we'll repeat as we move throughout the year. So, there is nothing with regards to what we saw in the first quarter that doesn't give us encouragement and confidence in the rest of the year. The comment was meant and then said largely, because of the fact that the reality of the first quarter represents about 21% of our retail sales, and as we move into the second quarter it's a much bigger quarter and represent about 37% of our year. And so, we've got a plan. The plan is in place. The plan is working and we're executing against it, and we feeling very good as we move forward.

Great. And if I could -- a quick follow-up. I know you're restricted to one question. But was the promotional expense associated with those targeted advertisements inclusive or part of your overall expectations for your projections for the year? Or was it higher than expected?

No. It's in line with our plans and it's certainly incorporated in our full margin guidance of 8% to 9%.

Excellent. Thank you.

Your next question comes from Craig Kennison of Robert W. Baird.

Yeah. Good morning. Thanks for taking my question. Matt, could you expand on the objectives of this new Brand President role and why you felt you needed to add that role?

Yeah. Thanks, Craig. One of the things that we -- wherever I go in the world, the power and the sort of meaning of the Harley-Davidson brand just stands out. And we -- I believe that the brand itself is in essence a fourth growth catalyst. How do we think about better leveraging? How we show up as a brand in every way that we show up as a brand whether that's through motorcycle product, apparel product, retail, design, obviously the digital presence through -- which is increasingly important and every aspect of marketing, but including commerce through H-D.com and showing up in a unified and powerful way, both for existing riders and to inspire future riders. This is a move to bring unity and leverage the power of the brand even further through, again, all the ways we show up as a brand to consumers to create a very compelling and inspiring reason for them to join the sport of motorcycling and join it on a Harley-Davidson product.

Your next question comes from Greg Badishkanian of Citi Group.

Great. Yeah. Can you talk just a little bit about the broader political tariff background that you're seeing today? It seems like the U.S. could potentially reciprocate tariffs against the EU tariffs. Today President Trump mentioned that the European Union tariffs hitting Harley-Davidson are "unfair". So how is that impacting your thinking today on that topic?

Hi. This is Matt. I'll take that. Just to back up a little bit here on this that we're impacted by the trade wars in a number of different ways. The input costs as we've mentioned on prior calls with steel and aluminum raw material, we're managing as an ordinary course in our business. We're not as impacted with tariffs on Chinese imports, because we don't import much from China. The big impact for us is the European Union tariffs and nothing has changed since the European Union increased the import tariff from 6% to 31% last June. It is on the books as -- in conjunction with that act last June that that tariff will increase another 25 points in June of 2021 to 56 points total -- represent total. And so we're pursuing our strategy as we've talked about many times to get to the European Union marketplace through our international manufacturing footprint. We have a strong case that's at the European -- at the Belgian authority within the European Union and we're waiting approval. Should that approval be denied we have other plans to continue to pursue a strategy to enter Europe at the base rate of 6%. Clearly, this is an imperative for us as a business. And as I've said many times before, we're continuing in our path and we'll continue to execute that strategy unless and until the circumstances change in this environment. And it's unfortunate, but we're pushing forward with our strategy to make sure that we preserve the integrity and the growth potential within the European market. It's a significant part of our business today. It's even more important to us as we bring on the new middleweight products that play very well into international markets, particularly European markets. So, the growth production that's represented in that we cannot afford it to be hamstrung with incremental tariffs that are currently at 31% and scheduled to get to 56%, two years basically from today. So, that's our situation. We're working through it. We're very confident in our application, and in our contingency plan should that application not be approved.

All right. Thank you.

Your next question comes from Felicia Hendrix of Barclays.

Hi. Thank you for the question, and good morning. I just -- Matt just as a little tag along to that answer when you’re just talking about your alternative plans, was that referring to the potential for the knockdown facility in Europe?

Europe has always been an option as we looked at how to mitigate the EU retaliatory tariffs. It wasn't our preferred option. Thailand was. So we have a number of other alternatives that we have at our disposal, should that approval not come our way. Again, we have a very strong case in front of the authority today. We're awaiting that approval, and we're prepared in the event that that approval doesn't come. And that includes Europe as a possibility just as -- that's always been a possibility from the beginning of this situation.

Okay. That's helpful. Thanks.

Thank you.

John, in your prepared comments, when you’re talking about market share, you'd said, you faced a headwind due to certain segments in which you don't compete, but you will later in the year. That seems like a little teaser to me, so I was wondering if you could elaborate on that at all.

Well, when we look at overall market share or the segment of the 601+cc market in the United States, it's comprised of six segments. We participate in three of them Felicia, and that's touring large cruiser and small cruiser, somewhat of a mixed number because those are very large bikes as well, and those are Street and Sportster. Within that that segment of the market has been declining at a faster rate than the other part of the market, which represents about 30% of the sales. And those are segments of the standard segment, dual and performance segments. So in the segments that we compete in, overall we gain market share during the quarter of 0.6%. In the segments that we compete in our market was up 2.5 percentage points. And the comment was that with More Roads and the new middleweight that Matt mentioned, in less than six quarters here, we will be participating in 100% of the markets in the United States. So we will enter into the performance with the Streetfighter and in the dual segment with an Adventure Touring, and in the standard segment with the lower displacement motorcycles. And obviously, they don't come with -- those are all incremental sales. They don't have used bikes in the United States. But even more exciting is the part of the world market and the world market is much bigger in terms of streetfighting and performance and traditional segments than the United States is. And in Matt's prepared comments, he had mentioned that right now we are in the addressable market of about 41% of the world's market. And with the new middleweight coming out, that will be in excess of roughly 90% in six short quarters. So we couldn't be more thrilled with regards to our overall More Roads to Harley-Davidson plan, and entering with the world's most powerful brand into many segments that we don't currently compete today.

And I'm just going to add, John that we're also eyes wide open to how competitive those segments are from a performance technology and pricing perspective. So we're clear eyed in the nature of our investment to deliver products that are going to be head to head with some formidable competitors, and we aim to complete and grow with our entry into those segments.

Okay. Can I just ask a quick question on HDFS? John, can you just walk through the thought process behind the March madness? Just wondering, that promotion that you did -- I was just wondering what the driver was. And to what extent do you think that accelerated retail sales in the quarter?

I think you're referring to the finance promotion that we had 2.99%, and no down for the top tier? Yeah, it's very much a standard promotion that we've run in the past. Matter of fact, we ran it last year in the second quarter. And it is just on our Touring bikes and Softail. We offer it through the top three tiers. And the top tier has got a lower rate than standard of 2.99% and no money down. And we ran it beginning in, I believe, February 11 through the end of the quarter. And people buying the motorcycle at that time had the opportunity to have preferable finance rate. We're very pleased with what we saw during the promotion.

Your next question comes from Jaime Katz of Morningstar.

Hi. Good morning. Thanks for taking my question. So now that the Street bikes are back to being shipped again, is that fully accounted for in the second quarter or whatever you believe you can make up from the lost sales in the first quarter?

I'm sorry, Jaime, I think the question was, is with Street back will we catch up on those overall sales?

Right. Is that all embedded in the second quarter outlook that you expect?

I’m sorry. Yes. I'm sorry. It is fully accounted for in the second quarter guidance, which we have as down 3% to 10%. And again, when you look at the first half, obviously our shipment guidance is down more than what we expect on a full year basis. And this is in line with a lot of our competition that we had in the first quarter, or as we exited the year is that we look to keep inventories very tight in the first half and through the selling season. And to that end, inventories were down 3,450 units in the first quarter. We feel very good about where inventories stand in the dealer network and certainly the mix of that inventory. And we're excited about having Street back in the lineup in the second quarter. Q – Jaime Katz: And then, last quarter you called out weakness in both the U.K. and France and it looks like France has dropped off of at least the slide commentary. So could you articulate whether there has been any change in that region worse or better? Thank you. A – John Olin: Yes. Certainly, in the fourth quarter, France was going through some consumer confidence declines, largely we believe driven by the yellow jacket protests. And we saw our volumes down a fair amount in the fourth quarter in France. And that has reversed in the first quarter and we saw good growth in France in the first quarter. Likewise, the U.K. we called out last quarter. Again lack of consumer confidence driven by what we believe to be Brexit and that unfortunately has continued. And we saw retail sales in the U.K. in the first quarter down double digit. And there's a lot of uncertainty driven by Brexit. There's a lot of business uncertainty and certainly a lot of consumer uncertainty and that has now been extended through October. So we got a close eye on that market. We're working on marketing programs. But right now, there's just a lot of uncertainty in the market. Q – Jaime Katz: Thanks.

[Operator Instructions] Your next question comes from James Hardiman of Wedbush Securities. Q – James Hardiman: Hey good morning. Thanks for taking my call. So Matt and John, I think you guys both talked about better recent sales trends. Maybe to the extent you feel comfortable quantify that talk about that. It sounds like maybe March was a little bit better. And then to the extent that they were relevant, I guess maybe talk about the earlier Street shipments that you got if that impacted retail. Obviously, you talked about it impacting wholesale as well as the equity marketing promos if that impacted things and then EagleRider I know that that moves around quite a bit. A – John Olin: All right. The recent sales trends I think was the first part of that James. And yes, in the first quarter, we saw certainly increased sales momentum. In January, retail sales were down let's call it well into the double digit. In February, retail sales were near double-digit down. And in March, which is -- represents the same size as both January and February combined was up mid-single digits. And we feel the drivers clearly are investment in our stronger dealer’s growth catalyst as well as increased marketing and brand support that we had in the quarter. And a lot of that takes time to take hold and certainly the selling season starts in the March time frame. So we're very pleased with the trends that we saw during the quarter. We're certainly very pleased with the things that we're doing with the dealer network and on the media side. Media was up about 90% during the quarter, increased marketing events and brand work. Again, we're investing $100 million in More Roads this year. All those things are working for…

Your next question comes from Tim Conder, Wells Fargo Securities. Q – Tim Conder: Thank you. Just wanted to follow-up on that on the promotional side, collectively, John or Matt anyone who wants to take this? Are your promotions different or the volume of those different as percentage basis year-over-year? Or is the mix that can direct-to-consumer, is that different within the overall promotions? And then, as a result of that, John, you alluded to about the HDFS delinquencies having some issues with the systems transitions. If we look at that though, I mean, we're setting at 373. And we haven't been at that level since 2011. What do you think that as you get the system now kicked back? You'd expect that to come down? Where can we kind of see that level out? I guess any color you can give from that perspective. A – Matt Levatich: All right, the first question is with regards to promotions are they different? One is on the financing offer, it's not different in anyway. But at last quarter we ran it at the beginning of April and this quarter we ran it a little bit earlier. So, that's different and the timing is different. And again, that was in support of all the other things that we were doing in the marketplace. Freedom Promise, we ran last year, very successful. And what that does is provides opportunity for some of the trade-up and had a credit for what they paid for a Sportster to trade-up to a larger Harley. So that the same. In terms of some of the stuff that we're doing with HDFS, and using the positive equity loans. That is new. And we feel very good. Our dealers certainly are using those leads and working with them. And…

Your next question comes from Sharon Zackfa of William Blair. Q – Sharon Zackfia: Hi. Good morning. I'll stick to the one question with an add-on. But just on the SG&A, was there anything one-time in nature or was there timing difference between this quarter and the rest of the quarters? Because it was extremely well controlled, so can you give us some more color on that? And then just to clarify for the tariffs for this year, is it still $100 million to $120 million incremental?

Thanks, Sharon. With regards to SG&A, we had three drivers of SG&A that we had mentioned. Is -- one is warranty and recall overall was favorable. The other piece of it is just in general, it can't really be parsed out that closely is overall the company has been very focused on expense management and being very prudent with the dollars that we have. And rallying cry for that has really been that any dollar we save gets reinvested in turning around the industry here in the United States and driving sales around the world. So a lot of incentive to be prudent with our spending, and we couldn't be prouder of the employee base and what we have done not this quarter, but over the last several quarters. And then finally those two were offset by an increase in marketing spending, fair increase in marketing spending which has always been the plan. And we expect on a full year basis that our marketing spending will be up well into the double-digits all in concert with our More Roads investment, which we expect to be about $100 million this year.

And I'll just add on Sharon that within the macro number there's a significant amount of reallocation under the More Roads growth catalyst, which is our commitment to self-fund the pivot that we're doing as an organization so, everything John said plus a fair amount of reallocation of dollars we used to spend that we're now investing within and under the three growth catalysts.

Your second question Sharon was with regards to incremental tariffs. We pay a lot of tariffs, but the incremental piece given the recent trade disputes is still expected to be on an annualized basis $100 million to $120 million. And again, we're looking to by the end of the year have the majority of our production coming from Thailand and avoiding those tariffs as we move forward.

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

Hi. Good morning. You know, March had a lot of consumer-facing offers the 2.99% the Freedom Promise. It seems like the targeted credits work probably the best, but with all of that, where is that hitting your P&L? Is that hitting HDFS? Or is that in your gross margin?

So -- well they're all different types of promotions, Gerrick. So I'll start with the finance offer. When we do a below-rate financing what we do is we subvent that with HDFS, which means the Motor Company pays for the buy down of that rate and the cost of having no money down because there's risk to that rate. And so what happens in the quarter is that the Motor Company will pay HDFS. That is an expense in the quarter in which that happens. So it's in the first quarter so those are in first quarter results and they happen as a contra revenue -- in the revenue line item as a contra account. Now the accounting from HDFS is a little bit different. They haven't earned that money yet because the loan hasn't gone through its paces. So that sits on the balance sheet and is accrued into -- released into earnings as the loan is paid down that got the benefit. So those are how that's accounted for. Freedom Promise is a little bit different. That is not an off invoice, but that is -- we forecast how much we believe that will cost in terms of people that will accept the offer, trade up the motorcycle and what we would need to pay the dealer because of them accepting the trade-in at the price that was paid. And again that's booked in the quarter that the offer is released.

Your final question comes from Brandon Rolle of Northcoast Research.

Hi. All my questions have been asked. Thank you.

Let's do one more.

Let's do one more then.

Your next question comes from Joe Altobello of Raymond James.

Hi, guys. This is Adam on for Joe. So I believe you mentioned there's been some early LiveWire interest from a younger demographic. Would you mind walking us through kind of the pace of the rollout here? Maybe how many dealers expect to get the product this year?

Yes. This is Matt. So we're very pleased with the rollout. Everything is on track. We've got about 100 dealers that are signed up. As I mentioned in my remarks they're getting ready with the installation of DC fast charging, which is an enhanced charging infrastructure than what's typically out there. And as I mentioned, they're starting to see people in cars seek out the dealerships, because they've got faster charging capabilities. We've got a training circuit out in the field, traveling dealer-to-dealer to train the dealership staff not just on the product, but actually more so on the customer who's likely to be interested in LiveWire. And through the preorders that we're getting and the deposits that are received, we're able to plan specifically where the demand is for LiveWire here in the United States and with that better plan the ongoing rollout of LiveWire globally, so we know we can support it with the capacity that we have. So everything is on track. Very encouraging signs with not just the age but the full nature of the consumer that's interested in LiveWire and the type of traffic and interest that it's driving to the dealer network and to the brand. And we're just at the very beginning of our EV initiative the tip of the spear being this really amazing LiveWire motorcycle.

Your final question comes from David MacGregor of Longbow Research.

Yeah. Thanks for taking the question. I guess the question is really on the profitability of the middleweight bikes and I guess the new bikes that you're rolling out in the three new categories. Can you just talk a little bit about the expected profitability of those products? And you talked about the fact that you're entering more competitive markets. So I guess I'm just trying to get a sense of context here how they're going to compare with what you're offering now but also the ramp process. How long it's going to take you to ramp to get to that targeted margin level? And just any kind of color you can give us around that would be helpful. Thanks.

Okay. Thanks, David. With regards to overall profitability, the middleweight bikes that come out will be very profitable at a very strong overall margin, but the margins will not be at the level that we currently see our Touring and Cruiser motorcycles which are the highest margins in the world. And – but those margins will be very – compared to any the motorcycle manufacturer the margins will be very attractive. And also obviously with the growth that we expect the middleweight to drive the spreading of the fixed cost in our plants also add a tremendous amount of opportunity for us. And as we've talked about before, while we have a gross margin in the 33%, 34% range each incremental volume unit that goes through our factories is in the 45% to 47% range, and so we pick up a lot with that as well. The overall profitability and the ramp is really from day one, the gross margin will be set and there's not a lot to ramp-up. We got certainly startup costs that we will talk more about next year when we get closer to it, but those typically are a couple quarters before we get in it. But there's no big time to getting – realizing that profitability, right.

All right. Thanks everyone. The audio for – the audio and slides for today's call will be available at harley-davidson.com. Or for the audio call 855-859-2056 or 404-537-3406 until May 6. The ID is 9355508. We appreciate your investment in Harley-Davidson. Have a great day.

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