Harley-Davidson, Inc. Q2 FY2025 earnings call

• Announced strategic partnerships with KKR and PIMCO for HDFS, achieving 4 key objectives: reflecting HDFS' value, creating long-term value with strategic partners, maintaining/lowering funding cost, and not negatively impacting customers/dealers. - HDMC's Q2 consolidated revenue declined 19% due to planned reduction in motorcycle shipments and soft demand. Touring faced headwinds, but the Softail lineup and RevMax platform grew. Dealer inventory was reduced by 28% compared to Q2 '24. - Racing initiatives: Partnership with MotoGP to launch a new racing series in 2026, first limited production race replica introduced, and investments in the race team's home. - Plan to launch new entry-level products, including a small displacement motorcycle targeting below $6,000, scheduled for release in the first half of 2026 and presentation to dealers in October 2025. - LiveWire focused on reducing cash burn and operating losses, with a 34% improvement in consolidated operating loss in Q2 compared to Q2 '24, and plans to launch production versions of latest concept models.

HDMC revenue decreased by 23% in Q2. HDFS Q2 revenue was $257 million, a decrease of only 2%, with operating income at $70 million, down less than $2 million or 2% compared to last year. LiveWire's electric motorcycles revenue decreased in Q2, with an operating loss of $19 million in Q2 2025. HDMC's global motorcycle retail sales were down 15% year-over-year. HDMC gross margin in Q2 was 28.6%, down from 32.1% in the prior year. HDFS' annualized retail credit loss ratio was 3.25% in Q2, compared to 3.12% in the year-ago period. LiveWire's full-year operating loss is expected to be between $59 million and $69 million.

• Expect HDFS to have approximately $525 million to $550 million of operating income for 2025. - Plan to increase the pace of share buybacks, purchasing $500 million in shares during the second half of 2025, reduce debt by $450 million, and have flexibility to invest up to $300 million in future growth opportunities. - Withheld the full-year 2025 financial outlook for HDMC and HDI due to the uncertain global tariff policy.

• The fluid global tariff environment remains a challenge, impacting operations. - Negative consumer sentiment and elevated interest rates affect customer purchasing behavior and motorcycle demand.

Q: What are the components you are using to calculate that 1.75x book value marker?

A: Jonathan Root explained it's the derivative of proceeds from KKR and PIMCO's equity investment in HDFS, relating to the premium paid versus post-transaction book value of HDFS.

Q: What's driving the underlying profitability of HDFS business getting better than originally anticipated?

A: Jonathan Root mentioned stabilization and slight improvement in used values, dealer participation at auctions, and repossession rates, with Jochen Zeitz adding used motorcycle business growth in Q2.

Q: Has consumer traffic picked up in July translated to improved retail performance?

A: Jochen Zeitz said there was a sequential significant improvement in North American retail trends for new motorcycle unit sales, expecting July to be better and comp positive going forward.

Q: Why was the 4.9% equity sale the right level sold?

A: Jonathan Root said it's due to FDIC regulations around ownership caps for the industrial loan corporation (Eaglemark Savings Bank), and Jochen Zeitz added it was the best outcome considering key objectives.

Q: Is the transaction assuming any growth in retail sales of Harley and receivables? Or any guarantees?

A: Jonathan Root said there are no guarantees around performance, but KKR and PIMCO have confidence in HDFS' operations.

Q: Clarification on small displacement bike profitability and launch?

A: Jochen Zeitz said the small displacement bike has been in development since 2021, targeting below $6,000, scheduled for release in the first half of 2026 and presentation to dealers in October 2025, and they believe it can be profitable.

Q: Clarification on $300 million into HDFS timing and new efficiency program?

A: Jonathan Root said HDFS transaction closing in the second half with possible Q3 and Q4 closings, and Jochen Zeitz mentioned new efficiency program with technology including AI to drive cost savings, details to be outlined in future calls.