LiveWire Group, Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Q2 Performance: Consolidated revenue up 12% (HDMC +13%, HDFS +10%), EPS $1.63, consolidated operating income $241 million (up 9% y/y). HDMC operating income up 2%, LiveWire operating loss $4 million less than a year ago.
• Global Market: Mixed performance. EMEA retail sales down 1%, Asia Pacific down 16% (China weakness), North America + Canada down 1%, Latin America flat.
• Hardwire Strategy: Focus on profit, strong mix and growth in touring/CVO models. 44% of riders consider performance most important, 73% want performance-related bikes. Involved in King of the Bagger Racing Series. Partnership with Hero, X440 reception positive. LiveWire focusing on cost productivity and lowering breakeven.
• Energy Grant: $89 million DOE grant for NY facility to support EV manufacturing and workforce training.
• Customer Insights: 44% of riders consider performance most important, 73% of owners think performance-related bikes are important. Average customer age 45, average income of new customers up 15% in 5 years.
• Events: Hosted European home rally in Senegal, Italy, and homecoming festival in Milwaukee with major performances.

Segment Performance

• HDMC (Harley-Davidson Motor Company): Q2 revenue grew 13%. Key drivers: 11 points from increased wholesale volume (motorcycle shipments ahead of last year by 16%), 4 points decline from pricing (including surcharge elimination and sales incentives for 2023 models), 7 points growth from mix (prioritizing most profitable models), and 1 point negative from foreign exchange. Q2 gross margin was 32.1% vs 34.8% prior year. Operating income up 2%.
• HDFS (Harley-Davidson Financial Services): Q2 revenue increased $23 million (10%), operating income up 21%. Driven by higher retail and commercial finance receivables and average yields, offset by increased borrowing costs and operating expenses. First-half revenue up 11%, operating income up 7%.
• LiveWire: Q2 revenue increased due to higher EV unit sales. STACYC electric balance bike revenue down. Operating loss $28 million, $4 million less than a year ago. First-half revenue $11 million, down 25%.

Guidance

• HDMC: Expect revenue down 5%-9% full-year, operating income margin 10.6%-11.6%.
• HDFS: Full-year operating income flat to up 5% unchanged.
• LiveWire: Full-year deliver 1,000-1,500 electric motorcycle units, operating loss $105 million-$115 million, capital investment $225 million-$250 million unchanged. Announced plan to repurchase $1 billion in shares through 2026.
• Retail Guidance: Expect 0%-3% full-year retail growth.

Risks

• High interest rate environment affecting the industry, especially big ticket consumer discretionary sectors.
• Mixed international market performance with EMEA, Asia Pacific, etc., facing challenges.
• Macro-economic environment leading to increased credit losses for HDFS.

Q: What does guidance assume for retail in 2024? And assessment of innovation moving the needle?

A: Jochen Zeitz said retail guidance is 0% to 3% full-year. Innovation has moved the needle as industry is down while Harley was slightly positive in U.S., with strong reception for CVO and Road Glide.

Q: HCMC op margin came in nicely despite gross margin pressure. Talk about second-half gross margin assumptions and SG&A?

A: Jochen Zeitz said they are making intelligent cost cuts, instituting belt tightening, with OpEx benefit unlocking in back half and investments in manufacturing to reduce costs.

Q: How did retail trend over the quarter and why comfortable with full-year flat to up 3% guidance?

A: Jochen Zeitz said Q2 U.S. retail trend was extraordinarily consistent with no negative months. Jonathan Root said confident in back half due to refreshed guidance, positive CVO and Road Glide reaction, good inventory availability.

Q: Dealer inventory to come down, any feedback from dealers? Impact on HDMC profitability?

A: Jochen Zeitz said minimal pushback, U.S. inventory expected to decline 35% vs year to date. Jonathan Root said thoughtful in refining dealer network to ensure profitability for dealers and shareholders.

Q: Breakdown of channel inventory model year and promotional levers? Confidence in continuing innovation?

A: Jochen Zeitz said not promoting 2023 models except 399 promotion, no promotions for 2024s now. Confident in product pipeline with multi-year portfolio plan starting with Hardwire strategy.