LiveWire Group, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Global market environment for big-ticket discretionary spend was challenging due to macroeconomic and political uncertainty and high interest rates. Global retail sales of new motorcycles declined 13% in Q3, with North America down 10% and international regions down 18%.
• In the U.S., Touring segment was up almost 10% through the end of Q3, gaining over four percentage points of market share. EMEA retail sales declined 23%, Asia-Pacific down 16%, and LATAM up 4%.
• Focused on reducing dealer inventory levels; dealer inventory at the end of Q3 was down 13% relative to Q2. Committed to supporting dealer health and preparing for 2025 model year launch.
• HDFS performed strongly with higher retail and commercial finance receivables. LiveWire is adjusting to the EV environment, focusing on cost efficiencies and productivity, with plans to announce a new product segment at EICMA in November.

Segment Performance

• HDMC (Harley-Davidson Motor Company): Q3 revenue decreased by 32%, largely due to a 39% decrease in wholesale units shipped. Year-to-date, HDMC revenue decreased by 9%. HDMC gross margin in Q3 was 30.1% compared to 31.7% in the prior year. For the year-to-date period, HDMC operating margin was 13.3% with operating income of $491 million, 30% lower than the prior year.
• HDFS (Harley-Davidson Financial Services): Q3 revenue increased by 10% driven by higher retail and commercial finance receivables. Year-to-date, HDFS revenue increased by 11% with operating income of $202 million, up 14% compared to the prior year.
• LiveWire: Q3 retail outpaced wholesale but still fell short of expectations. Year-to-date, LiveWire revenue declined by 30%. For the full year, LiveWire is revising guidance to 600 to 1,000 motorcycle units, with operating loss guidance unchanged.

Guidance

• Revised full-year 2024 outlook: HDMC now expects retail and wholesale units to be in the range of 149,000 to 153,000 units, with revenue down 14% to 16% and operating income margin between 7.5% and 8.5%.
• HDFS guidance revised upward, expecting operating income to be up 5% to 10% for the full year.
• LiveWire revised to 600 to 1,000 motorcycle units for the full year, with operating loss guidance unchanged and capital investment in the range of $225 million to $250 million unchanged.

Risks

• Macro-economic and political uncertainty affecting global market environment for big-ticket discretionary spend.
• High interest rates impacting both the industry and customers.
• Intense market competition affecting sales and market share.

Q: Craig Kennison with Baird asked about themes from recent dealer conversations and message to dealers.

A: Jochen Zeitz mentioned dealer profitability is front of mind, held annual dealer forum in October, presented support for network in 2025, and dealers rated the forum outcomes very good to exceptional.

Q: Megan Alexander with Morgan Stanley asked about retail trend and outlook for 4Q.

A: Jochen Zeitz said Q3 started strong in July but ended weaker than expected, especially in late-September, and they are prudent with retail comments.

Q: James Hardiman with Citi asked about retail and wholesale alignment and inventory for 2025.

A: Jonathan Root said dealer inventory at end of Q3 was down 13% and aim to be down another 20% from current levels, prioritizing availability of core categories.

Q: Joseph Altobello with Raymond James asked about retail cadence and inventory quality.

A: Jochen Zeitz mentioned the new Touring lineup has better inventory quality than previous years and they are prudent with retail comments on October.

Q: Robin Farley with UBS asked about LiveWire business commitment and potential reevaluation.

A: Jonathan Root said LiveWire is working to reduce cash burn by 40% next year, taking actions to improve margin and manufacturing costs, and they will continue to invest prudently.

Q: Fred Wightman with Wolfe Research asked about 15% operating margin target for 2025.

A: Jonathan Root said cost productivity, leverage, pricing, and operating discipline contribute to achieving the 15% margin target.

Q: Alex Perry with Bank of America asked about HDMC gross margins in 4Q and promos.

A: Jonathan Root said Q4 margin will be challenged due to reduced wholesale shipments, and they are using rate promos to support retail.

Q: Noah Zatzkin with KeyBanc asked about HDFS book health and interplay with rate cuts.

A: Jochen Zeitz said HDFS is managing losses well in 2024, but 2025 may be more challenging as debt portfolio resets before retail portfolio.

Q: David MacGregor with Longbow Research asked about weather impact on retail and 2025 market share.

A: Jochen Zeitz said weather impacted retail, especially towards end of September, and they are confident in defending market share with new product lineup.

Q: Tristan Thomas-Martin with BMO Capital Markets asked about more affordable bikes.

A: Jochen Zeitz said they are addressing entry-level products with RevMax but details will be out in the New Year.

Q: Jaime Katz with Morningstar asked about market share and structural operating profile.

A: Karim Donnez said they gained market share in touring, and Jonathan Root said they are constantly evaluating capacity and manufacturing footprint based on cost productivity and market environment.