Thank you for standing by and welcome to the Harley-Davidson's Fourth Quarter and Year-End 2022 Earnings 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. Joining me this morning are Harley-Davidson's Chief Executive Officer, Jochen Zeitz; in addition, Chief Financial Officer, Gina Goetter is with us, and also LiveWire President, Ryan Morrissey. In addition, Harley-Davidson's Chief Commercial Officer, Edel O'Sullivan will join for the Q&A portion of today's call. With that, let me turn it over to our CEO, Jochen Zeitz. Jochen?

Thank you, Shawn, and good morning, everyone. As we conclude the second year of the Hardwire, our five-year strategic plan to drive profitable growth, Harley-Davidson delivered a strong finish to the year. We are pleased with our performance for 2022 with the execution of our strategic pillars, driving an 8% increase in revenue and a 14.1% increase in total HDI net income. Through the foundational work of the Rewire and the execution of our Hardwire strategic plan, we have changed our overall approach and focus as a business from prioritizing unit growth at all costs to a more holistic view on profitable growth of motorcycles, parts and accessories, apparel and licensing and Harley-Davidson Financial Services. This strategy contributed significantly to the increase in our margin to 13.9% at HDMC excluding LiveWire, compared to 7.6% in 2019 with a three-point margin expansion and a much more effective and efficient allocation of our resources, leading to an EPS growth of 18% to $4.96 despite all the supply challenges that we had to face throughout the year. As you know, Harley-Davidson is on a transformational journey, and even though the economic environment continues to evolve, we remain optimistic about the significant potential of the Harley-Davidson business for 2023 and beyond. I will briefly address our six Hardwire strategic pillars and our delivery of them over the past year. Profit focus. We are committed to strengthening and growing our position in our strongest motorcycle segments in 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. Our 2022 lineup revealed eight new models, each powered by the Milwaukee-8 117, the most powerful factory-installed engine ever offered…

Thank you, Jochen. Good morning, everyone. 2022 was a banner year for LiveWire, many major milestones, including the completion of our listing on the New York Stock Exchange. LiveWire is building on the energy the September listing brought to our brand and our organization. Our teams continue to operate with the benefit of the full support of our strategic partners at Harley-Davidson and KYMCO. We finished 2022 above expectations, delivering 97 motorcycles over the planned 500 units. The LiveWire ONE continues to earn rave reviews as more and more riders are introduced to the LiveWire experience. As we move into 2023, investment into product development continues to be on the top of our priority list. Our engineering teams are laser-focused on advancing the technologies, platforms, and products that will further our position as pioneers of the industry. In 2023, we expect to see the introduction of LiveWire ONE to the European market and the launch of the S2 platform. Based on preproduction builds, we expect to begin selling Del Mar in the second half of 2023 behind our original plan for spring of this year. Given industry seasonality patterns, we expect this to have a meaningful impact on our originally planned 2023 units. On the commercial front, we continue to build and mature our retail partner network in the United States, with a physical location in 90% of the top 40 metro areas, all working as part of the omnichannel model designed to meet and exceed the expectations of our riders. The count of Del Mar reservations in the U.S. has continued to grow, building on the buzz created by our launch additions. The team is excited to bring LiveWire to Europe in 2023, led by a new vice president for Europe. Our retailers across France, the UK, Germany, the Netherlands, and Switzerland are readying to bring LiveWire to their markets as the riding season picks up. The powertrain facility in Wisconsin is tooling up and readying to produce the LiveWire S2 powertrains that will then be assembled into LiveWire motorcycles in Pennsylvania on the same line where we have been manufacturing LiveWire ONE. The support of Harley-Davidson supply chain and manufacturing capabilities continues to be a differentiating strategic asset. Finally, our STACYC brand continues to spread the electric experience to kids and delivered double-digit year-over-year revenue growth. 2022 saw the introduction of the new products the market has been demanding for older kids. The 18 and 20-inch bikes began retailing with a strong customer fund. And now I'll hand over to Gina Goetter to talk through the financial performance of Harley-Davidson and LiveWire in greater detail. Gina?

Thank you, and good morning, everyone. As Jochen highlighted, we delivered a strong quarter in total fiscal year by staying focused on business fundamentals and executing on our Hardwire strategy. Q4 marks the first time we are reporting under our updated three-segment structure of HDMC, HDFS, and LiveWire. HDMC houses our Harley-Davidson branded motorcycle, parts and accessories, and our apparel and licensing businesses. HDFS provides motorcycle financing, insurance and other services to our dealers and retail customers. They will continue to provide services to both HDMC and LiveWire. LiveWire is the new segment, housing the design, marketing and sales of electric motorcycles and STACYC electric balance bikes. Harley-Davidson owns an 89% interest in LiveWire and will continue to consolidate their results in the Harley-Davidson Inc. Fourth quarter results closed out a strong year with significant year-over-year revenue and operating income increases. Pricing actions and cost productivity ultimately overcame the impact of the production suspension in Q2 resulting in three points of operating margin expansion versus prior year. Looking at our financial results in the fourth quarter, total consolidated revenue of $1.14 billion was 12% higher than last year, with growth within HDMC and HDFS, and a decline in the LiveWire segment. HDMC wholesale motorcycle units increased 18% year-over-year and HDMC revenue was up 14%, driven by the increase in shipments and continued strength in global pricing. Harley-Davidson financial services segment revenue was up 7%, largely due to higher finance receivables. And the LiveWire segment decline was primarily due to a strong comparison period in 2021 as the company built inventory across their expanded distribution network. Total consolidated operating income of $4 million was $11 million better than prior year. Total operating loss at HDMC of $32 million is a $50 million improvement versus prior year's losses. As a reminder, with…

Thank you, Gina. We continue to deliver on our Hardwire strategy, and in May we detailed our ambition to capitalize on the early success of our strategy, tuning the engine of our business for improved performance. We believe that by focusing on our six Hardwire pillars and related core initiatives and making bold moves in spaces where we can win, we can deliver not only further improvement in top, but also in bottom line performance in the long run. We continue to invest for long-term growth within our most profitable markets and categories where we see potential, and we are building capabilities that will allow us to expand our customer reach and experience, ultimately focusing on initiatives that create value for all our stakeholders. Lastly, 2023 is an important year at Harley-Davidson. Since 1903, Harley-Davidson has pioneered American motorcycle design, technology and performance. And this year, we'll be marking our 120th anniversary with a year-long celebration. We will talk more about our recent model year 2023 release of 120th anniversary of product at the next quarter, but we're excited about what is going to be an unforgettable milestone for the company, celebrating the history, culture, and community of Harley-Davidson with our riders and fans, reaching new customers, and bringing more people to the brand. We want to make -- we'll walk you the ultimate destination for motor culture in the world. And with this anniversary, we are making a commitment to our hometown, but also to our community. We hope to see you all there. Thank you. And now we'll take your questions.

Thank you. [Operator instructions] Your first question comes from Craig Kennison with Baird. Your line is open.

Good morning. Thank you for taking my question. I'm curious, how would you interpret the demand signals you are seeing across your spectrum, whether it's from subprime consumers to more affluent consumers, or if there's another way to suss out what the demand trend looks like, it's a pretty difficult macro right now to forecast?

Yes. It's Jochen here. Thank you for the question. Demand segments are early, right? We haven't really entered the riding season yet. Overall, what I can say is that January has been performing in line with our expectations. But as season unfolds, obviously, we will know where demand sits. Right now, we feel comfortable overall with the inventory that we have. We feel comfortable with the demand signals that we are seeing, but time will tell. Overall, we expect a flat to slightly positive retail growth for the year with the positive -- when it shows up to mostly appear in the second and third quarter simply because we had our -- with our core riding seasons and quarters. So overall, we do expect a flat to positive retail growth, and that's our anticipation. And I hope that answers your question about demand signals. It's still early on in the year, but overall, we are quite positive.

Just to follow up on that, a positive -- go ahead, Gina. Sorry.

Craig, good morning. I was just going to give you some color on how you were asking about prime, subprime, and applications. So overall, as Jochen said, still early days in January performing in line with expectations. Overall from a retail environment, from a loan application standpoint, we are still seeing quite a bit of interest come in, frankly, across both prime and subprime. So our loan application volume in the month and really as even at the back half of last year has continued to stay strong.

Great. Thank you.

The next question is from Robbie Ohmes with Bank of America. Your line is open.

Hi. Thanks. I'm going to slip in just a quick follow-up and then one different question. Just a follow-up on the first question is, would -- do you guys expect retail in your shipments to sort of track in line in 2023? Or is there still some dealer fill in? And then just on the dealer network, maybe Jochen, could you kind of update us on how you're thinking about further consolidation of the dealers for 2023? And what dealer-focused initiatives you guys are most focused on for 2023?

Sure, Robbie. In terms of your -- the question about retail. As Gina mentioned, we expect about a 2%-unit growth from motorcycles for the year. And that would include a slight pipeline lift in addition to the retail guidance that I've given. So positive retail guidance and small pipeline filling would equate to the 2%. So it's a combination for both at this point in time. And Gina -- sorry, Edel, do you want to talk about the network?

Yes. Thank you, Jochen. Good morning, Robbie. A couple of initiatives that are critical for us in this year as we return to a stronger inventory position, and we face into the anniversary year. The first and Jochen referenced it in his comments is around Project Fuel, which is the upgrade of our facilities across the globe. This is a program that is incredibly important. We believe it is long overdue and it is proceeding at pace. It is a significant investment for our dealers, but it's one that we believe will pay off in terms of the opportunity for expanded growth and outreach to more diverse segments of riders. So that's one big priority for us. The second one is to continue to emphasize the balance of desirability and profitability. There are a couple of initiatives that we are pursuing. Obviously, we will find opportunities as the year goes along to continue to emphasize the message around affordability, but also restrained and very, very careful management of inventory for us is very important and some initiatives that we are driving in terms of an updated distribution system that allows for faster replenishment, but also a lot more control in terms of how much inventory is out there is an important part of a value story, which is relevant to us, to our dealers and to our consumers in terms of the product holding its value over time. And then the third initiative that I would highlight is, of course, this is our anniversary year. It is very important not only for the bikes, but also for the apparel, which is early indications would say, has been extremely well received, but also all of the activities around engagements and consumers that involve our dealerships as well as our headquarters and all of the activities that Jochen mentioned in Milwaukee. So those, I think, are three big pillars that we will be pushing forward this year.

Sounds great. Thank you.

The next question is from Fred Wightman with Wolfe Research. Your line is open.

Hey, guys. Good morning. Thanks for the question. I was hoping you could just unpack the dealer inventory numbers that are in the slides. I know that you're still down pretty big versus 2019. But if we just look at that sequentially, it does look like it built and then you're obviously dealing with model year changeover as well. So, can you just sort of unpack where units are, where you saw that sequential build and sort of how we should think about that going forward?

So we have 34,000 units in the network now. That's the dealer inventory level. That's 15,000 more than in 2022, which, as was an extremely low level of inventory at the time. If you look at this from a historic perspective, that level is 60% of 2019. So pre-pandemic, 60%. So it's still an extremely healthy level. Thankfully, we have more inventory in the network right now. And we are finally getting back to a better spot. So overall, I'd say, we are good in terms of inventory and that should help us to start the riding season in a healthier position than we have previous year.

The next question is from Joseph Altobello with Raymond James. Your line is open.

Thanks. Hey, guys. Good morning. I guess first question, I'll cut right to the chase. There's a lot of moving parts here. But if we look at your guidance this morning, I think it equates to roughly EBIT guide for 2023 of around $850 million to $875 million. So if you could clarify that for us, that would be great. And maybe secondly on LiveWire. The estimate coming into this year or at least what you gave us back in December of last year, 2021 was about 7,000 bikes. You're looking at about, call it, 2,000 bikes this year. Why the slow start? And how quickly or how willing would you be able to kind of pivot if you don't see demand start to materialize in that business? Thanks.

Hey, Joe. Good morning. This is Gina. So on your first question here, you're in the right zone on overall EBITDA guidance when you kind of add up all three different segments. So, I would say you're thinking about that generally right. And I'll turn it over to Ryan for LiveWire.

Yes. Thanks, Joe. On the LiveWire front, to your question on the units and the change in expectations there, the majority of the 2023 units were expected to come from Del March and as we talked about in the opening comments, we've changed the time line on that bike. So given the new time line, we're now expecting sales to ramp up in the second half of the year for that motorcycle. So, we brought the units down accordingly, taking the industry seasonality into account. So the bike continues to look amazing. We're laser-focused on getting it to market, but the change in the time line is what's driving that change in the units.

The next question is from James Hardiman with Citi. Your line is open.

Hey. Good morning. So, I wanted to hone in on that, I think you said flat to positive retail growth for the year. Maybe unpack how you're thinking about the industry -- the broader motorcycle industry, which I know you don't entirely compete in all those categories. So maybe touring and cruisers, how you're thinking about those segments sort of based on what you're seeing in the market right now and then sort of assumptions for market share, obviously? We don't know what your product pipeline is, but how you think about? How you're going to perform relative to the industry to get us to that flat-to-up retail number?

Yes. Look, we are -- I'm not really looking at the industry at this point. I'm just looking at what we think we can achieve as a company, as a brand in 2023. So unpacking retail, if you look at our seasonality, as I said earlier, we would expect then in order to achieve a flat to slightly positive retail growth that to come in the core quarters of the second or the third quarter with the first and fourth being flat or slightly down. So that's how the year would unfold. But in terms of the industry, we're really focusing on our segments and we believe that we can -- we have an opportunity here to grow. That said, we want to absolutely make sure that the desirability of our product, the MSRP, in market is -- and the desirability is maintained. So whatever the demand will bring, we'll adjust accordingly to protect our profit margin. But overall, what we are seeing now is good demand, but it's very early. So any demand segments now cannot be taken as an indicative demand segment for the coming months?

Hey, James. This is Gina. Just to provide a little bit more color there on the flat to positive. So as Jochen said, we don't really hone in and focus much on the share gains. I mean we are the categories when you think about Touring and Cruiser, we are the market. When you look at what we delivered, I think we had it in one of our slides, we did deliver share growth in those categories in 2022 within the U.S. Also keep in mind that we are comping as we get into Q2, Q3, the production suspension. So even though on the back end, we were able to make up from a wholesale shipment standpoint in 2022, we really missed out on key riding season. So as you think about our retail growth next year overall, Q1, Q4, probably more muted where you really see the benefit is going to be within Q2, Q3.

Makes sense. Thank you.

The next question is from David MacGregor with Longbow Research. Your line is open.

Yes. Good morning everyone. I guess just a quick one for the model on free cash flow. I mean, you're coming off $548 million 2022, I noticed you haven't provided explicit guidance on free cash flow. But how should we be thinking about that in general terms? And what's achievable in terms of working capital give up as a contributor to that number?

Good question. Good morning, David. This is Gina. So overall, I would say similar levels of cash flow as we head into 2023. So there's nothing atypical. Obviously, in 2022 we had the LiveWire investment that we were making. We will not have that as we move into 2023. So I'd say similar levels overall. From a working capital standpoint, one of our big focus areas as we move into next year is just keeping our eye on that inventory number and making sure that we're mindfully kind of reacting to and bringing that down as we move through the year. As we end the year, always keep in mind, right, we're building inventory on our balance sheet as we end the fiscal year. That starts to bleed out through the first part of the year, both in terms of finished products -- finished motorcycles as well as all of the apparel and licensing and P&A that go along with them. So even though it looks high at the end of the year, that bleeds itself down through the first half.

Good. Thank you.

The next question is from Gerrick Johnson with BMO Capital Markets. Your line is open.

Hi. Good morning. I had a couple of product questions. First, the 350 bike, you mentioned about populated Riding Academy. Is that something that will be available for graduates to purchase when they do complete the course? And then on the CVOs, I know you've got one out now. I think in the past, you kind of launched them all at the same time, and that seems like a rolling rollout of the CVOs. Can you just explain or talk about the strategy behind the CVO launches?

Hey. Yes, Gerrick. So the 350 is not going to be available for purchase in North America. It's exclusively for Riding Academy. As I said in our launch video, we have a few things still up our sleeve. But obviously, we're very excited about the CVOs that we've already launched. If and what might be coming later in the year, we'd have to wait a bit longer for that. But overall, I think we have a very strong product and the reception for what we've launched has been very strong already.

Okay. So no production delays to worry about. It's a conscious decision to launch these on a rolling basis then?

Not from today's perspective. We've seen a good destabilization in our supply chain. It's certainly not yet back to normal, but we feel confident that we are able to deliver the bikes at this point in time.

Okay. Thank you.

The next question is from Jaime Katz with Morningstar. Your line is open.

Hi. Good morning. First, a clarification. You guys noted historical levels of profitability is what you're looking to get back to. I want to make sure that doesn't mean peak level of profitability. So maybe mid-teen operating -- motorcycle operating margins versus high-teen motorcycle operating margins? And then the other question I have is on LiveWire. I understand the issue with units being pushed back in 2023. But does that still keep you on that 2024 trajectory to deliver more than 15,000 units? And if not, does that derail your ability to eventually get to positive EBITDA in 2026, which was the initial outlook? Thanks.

Good morning, Jaime. This is Gina. I'll take the first part of that. So in terms of historical levels of profitability, you're headed in the right direction when you say is it more of the mid-teens. We are laser-focused on getting back to what we committed to as part of our Investor Day in May of getting that margin back to that, call it, 15%. So that's where when we say historical, not peak.

Hey, Jaime. On your question on LiveWire, a couple of thoughts there. Generally, the discussion on Del Mar in the event of 2023, don't have any impact on our vision or our long-term strategy, or our near-term priorities. We're continuing to see the long-term direction of the vehicle markets and continue to have the strongest position to lead into wheel with the help of our strategic partners. So we're focused on 2023 today, but safe to say, we're continuing to focus on innovating in the core EV systems, the product portfolio, and expanding our distribution. And we think if you continue to look at the long-term trajectory and the long-term goals that we've set for the company, they continue to be the right ones.

There are no further questions at this time. This will conclude today’s conference call. Thank you all for joining. You may now disconnect.