Harley-Davidson, Inc.
Q1 2020 Earnings Call Transcript

Published: 28 Apr 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the 2020, First Quarter Earnings Conference call. At this time all participants are in a listen-only mode. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions].I would now like to hand the conference over to your speaker today, Director of Investor Relations, Mr. Shannon Burns. Thank you. Please go ahead.

[Shannon Burns:]

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. 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 CEO, Jochen Zeitz; and CFO, John Olin, and we are dialed in from multiple locations. Jochen, let's get started.

[Jochen Zeitz:]

Thank you, Shannon, and good morning everyone. Today I'll share with you my observations, initial actions and the direction in which I plan to take Harley-Davidson. Before I do, I want to acknowledge the historic time we are in and how honored I am to be part of an organization that has shown such incredible spirit in the face of adversity.Harley-Davidson is deeply rooted in community and we honor those who are sick, providing care and relief, and working tirelessly to end this terrible pandemic. This crisis has impacted us all, but I know we will prevail. I'm confident that with the right focus and changes that I intend to implement swiftly and diligently, we will emerge stronger.From my observations over the last two months, it is clear we are at a critical time in our history that requires significant changes to the company. My key insights are as follows

[John Olin:]

Thank you, Jochen. The summary of our Q1 results is on slide six. In the quarter Motorcycle segment operating income was lower year-over-year, driven by lower shipments and unfavorable currency, partially offset by strong manufacturing productivity, lower year-over-year tariffs and lapping last year's restructuring charge.Financial services operating income was down 60.9%, driven by adjustments to our provision for loan losses as a result of COVID-19 and the impact of a new accounting pronouncement. Consequently consolidated net income was down versus the prior year. EPS for the quarter was $0.45. Despite the COVID-19 crisis, our long term focus remains on disciplined inventory management, aggressively managing costs, generating cash from operations and delivering strong shareholder returns.On slide seven, first quarter worldwide retail sales of new Harley-Davidson Motorcycles were down 17.7% versus prior year. During the first quarter retail sales were off to a strong start across the globe, but were significantly hindered as consumer concerns and governmental efforts related to COVID-19 spread throughout most of our world markets; first in Asia, then Europe, finally in the U.S., Canada and parts of Latin America.Looking past the near term crisis, we believe our brand distribution and innovative products provide a great base for long term success. As a result of the focus that our Harley-Davidson rewire actions will bring to optimize value and profit delivery, we believe we will emerge a much stronger company in the future.Let's take a closer look at the U.S. on slide eight. U.S. retail sales were down 15.5% for the first quarter versus prior year, but not before peaking at 6.6% quarter-to-date growth through mid-March, behind the success of a stronger dealer efforts and the introduction of several new models. HD retail sales fell significantly in the back half of March due to consumer concerns and approximately 50% of our dealers being temporarily closed for Motorcycle sales in the U.S. due to COVID-19.During the quarter Harley-Davidson’s market share for new bike registrations was 48.9% down 2.2 percentage points, driven by aggressive discounting by our competitors, lapping HD's prior year finance offer and an unfavorable shift in sales mix from segments in which we compete, to segments which we do not currently compete, but will begin competing in with Pan America and Bronx Motorcycles. Our share was also down in segments in which we compete.As a result of the COVID-19 impact, quarter end U.S. retail inventory rose by approximately 1,600 Motorcycles versus the prior year. We will aggressively manage the supply of Motorcycles into the dealer network as we manage through this crisis.On slide nine, international retail sales were down 20.7% in the first quarter as COVID-19 fears and dealer closure spread from Asia to Europe to Canada and Latin America. EMEA declined significantly across all markets and finished down 28.4%. Asia Pacific was down 5.3%, driven by declines in China and South Korea, partially offset by growth in Japan and India. Latin America saw declines in Mexico and Brazil and finished the quarter down 21.5%.Our Q1 market share in Europe was 7.6%, down 1.3 percentage points versus the prior year. Our market share was adversely impacted by an unfavorable shift in sales mix to non-HD segments and increased competition.On slide 10, wholesale Motorcycle shipments in the first quarter were down 10.0%. Shipments were impacted by COVID-19 related disruptions of our manufacturing operations. Overall family mix shifted from Touring and Sports to Street Motorcycles, to Cruiser Motorcycles versus last year's first quarter.On slide 11, Q1 revenue for the Motorcycle segment was $1.1 billion, down 8% behind a 10% decrease in Motorcycle shipments. Average Motorcycle revenue per bike was up $599, driven by a favorable product mix, lower sales incentives and higher year-over-year pricing, partially offset by unfavorable foreign currency exchange.On slide 12, gross margin in Q1 was down as a result of lower shipments, less rich product mix and unfavorable currency exchange, partially offset by lower manufacturing expense. Q1 product mix was unfavorable by $3.4 million, driven by a shift in family mix and unfavorable Parts & Accessories mix.Q1 gross margin was adversely impacted by $10.8 million of currency exchange. Foreign currency was unfavorable, largely due to a stronger U.S. dollar. First quarter manufacturing expense was favorably impacted by strong productivity, lower tariffs and lapping prior year temporary inefficiencies, partially offset by lower absorption of fixed manufacturing costs.On slide 13 operating margin as a percent of revenue for Q1 was unfavorable compared to last year driven by lower gross margin and increased SG&A due to lapping of prior year recall recoveries, largely offset by aggressive cost management. Profitability and cash flows remain a key focus.Turning to our financial services segment on slide 14, as we discussed last quarter on January 1, 2020 we adopted CECL, the new accounting pronouncement for credit losses. As a result, we took a one-time increase in the allowance for credit losses of $100.6 million with the offset being a reduction to retained earnings net of taxes.This new accounting standard will not have an impact on the economics or cash flow of our HDFS business. However, as we have discussed, we do expect the adoption of CECL to result in increased earnings volatility, and that we have certainly played out in the first quarter of 2020.HDFS’s first quarter operating income was $22.9 million, down 60.9% compared to the prior year. The first quarter provision for both retail and wholesale loan losses was $44.9 million unfavorable to the prior year.The increase in the provision was due to two factors

[Operator:]

[Operator Instructions] Your first question comes from Greg Badishkanian with Wolfe Research. Your line is open.

[Greg Badishkanian:]

Great! Thank you. You know a two part question. The first one is, you know retail sales were strong if I read right, 6.6% positive prior to the COVID outbreak. You know it would have been one of the best quarters in years. So what drove that performance, what can you utilize going forward post COVID?And did I miss – I didn’t hear a quarter-to-date U.S. for April. I’m just wondering how those trends were for you, because I think some of the other you know power sports like Polaris I think seem to have gotten a bit better in April. I’m wondering if that was the same for you?

[John Olin:]

Thanks Greg, this is John. Yeah Greg, through – you know the quarter was a tale of two quarters right; first, a 10 week period and then a three week period. Through the first 10 weeks we were doing very well in terms of retail sales and as we had mentioned, the U.S. was up 6.6%. Greg a lot of that was driven by the activities that we've been pursuing over the last year, under stronger dealers and those have continued to take hold. We see more dealers adopting and certainly strong results coming out up on those actions.The second thing is, as we also brought several products to market in the first quarter, a lot of it late in the quarter, but they also drove a fair amount of sales. When we talk about - so the last three weeks we saw a precipitous fall-off of retail sales for obvious reasons, and that was a lot, that was led Greg by the closure of dealers. So we started the month of March, there was about 4% of our dealers who were closed and that considerably escalated by the end of March, it was 55%. And through April where we sit today, about 59% is closed.So we are starting to see the dealer closures plateau for sales of new motorcycles, but with that retail sales are down. They are down a fair amount in the month of April. However, they are not down to the same extent the dealer closures are. So retail sales are outperforming our dealer closures and with that, we’d suggest that dealers that are open are selling near year ago levels.

[Jochen Zeitz:]

Greg, if I may add – Jochen here. You mention new model introductions in the first quarter. We had four new models that were all focused around the core of our business with the 30th Anniversary Fat Boy, Softail Standard, Eagle Eye and Patriot and then that certainly helped to boost our sales in the first couple of months.

[Greg Badishkanian:]

I appreciate that.

[Operator:]

Our next question comes from Felicia Hendrix with Barclays. Your line is open. Felicia Hendrix, your line is open.Your next question comes from Craig Kennison with Baird. Your line is open.

[Craig Kennison:]

Hey, good morning. Thank you for taking my question. Really a multipart question related to the CEO search. But Jochen, first of all as you meet with dealers and what are they seeking in a new leader at Harley Davidson. And second, how should investor’s interpret the decision to really pursue a five year plan before you actually hire the permanent CEO, and does that mean you're a candidate? Thank you.

[Jochen Zeitz:]

Thanks Craig. In terms of the CEO search, there's really nothing to report at this point. I'm focusing clearly on the developing and the implementation of the plan to deal with the crisis and make sure that we get through the stronger with The Rewire plan, which I'm also planning to implement and develop obviously as we're in the middle of that. So there's nothing really to add at this point in time in terms of the CEO search.

[Craig Kennison:]

In terms of what dealers are seeking in a new leader?

[Jochen Zeitz:]

Well, I don't know what dealers are seeking. We know what we are seeking as a Board and those criteria have been established. So I think there's nothing to add to that and I think in developing a five year plan is always part of a CEO’s job, acting on not, and I've made it very clear in the beginning that I'm not an interim-CEO, but an acting-CEO and as we are doing our rewiring process and playbook, we obviously have to also look at our existing strategic plan and see what's still valid and what is not. So my duty is also to develop a new five year plan, and that's what we're focusing on at the same time.

[Craig Kennison:]

Very helpful, thank you.

[Operator:]

Your next question comes from James Hardiman with Wedbush. Your line is open.

[James Hardiman:]

Hey, good morning. Thanks for taking my call. So I wanted to dig into HDFS a little bit. I think I generally get what's going on with CECL. But maybe give us an idea, the increased reserves, that $36 million number, what would that have looked like if we weren’t using the CECL standard? Obviously that's getting amplified there.And I guess my bigger question is as we look forward how do we think about HDFS? I would assume that that $8.9 million higher actual credit losses is something we're going to be dealing with over the next few quarters, but that – you know assuming credit metrics don't get significantly worse, that we shouldn't be worried about that $36 million number repeating going forward. How should we think about that?

[John Olin:]

Thanks James, this is John. As you had noted, the reserves are increased by $36 million, overall provision was up $45 million and that's made up of the two pieces you mentioned, $8.9 million in actual losses and then the reserve piece of that at $36 million.So CECL did create or cause that to be a higher number than it would have otherwise been. So we estimate that of the $36 million, about three quarters of it, around $17 million, $18 million would have been there on the incurred basis, the incurred method that the industry followed prior to CECL.So that leaves about a quarter of it due to CECL and the CECL piece actually has two pieces

[James Hardiman:]

Really helpful, thanks John. And just to be clear, that $8.9 million, even if assumptions stayed consistent with where they were on March 31, that's something we would have to deal with for the next three plus quarters?

[John Olin:]

No, I'm not completely sure I understand James. The $8.9 million is what we've written off.

[James Hardiman:]

Right.

[John Olin:]

Those are our loans that we do not expect to collect. We will continue to try to collect them, but they are written off and they are behind us. They have nothing to do with us going forward.

[James Hardiman:]

Okay. And so we shouldn't assume that that level of actual loss increases would happen in future quarters. That's already been accounted for in the increased provision.

[John Olin:]

While those specific loans have been written off, we've got a lot of other loans and next quarter we will look at which ones of those would go to write off right, and those are predicated on our customers’ ability to repay, unemployment and all those other factors that we mentioned.

[James Hardiman:]

Got it. Okay, thanks John.

[John Olin:]

Thank you, James.

[Operator:]

Your next question comes from Felicia Hendrix with Barclays. Your line is open.

[Felicia Hendrix:]

Hi! Can you hear me now?

[Jochen Zeitz:]

Yes Felicia.

[Felicia Hendrix:]

Okay. It’s time to get a new phone I think, sorry. So just kind of staying on that line of questioning and good morning, John I did have a question for the kind of CECL related question in the credit loss provisions. Just by the way that we're calculating things, the $45 million increase in the credit loss provisions just looks a little bit you know low. It's only a $10 million increase from last year, so can you just talk to us about the assumptions behind that change given the new CECL accounting standards? We thought it would be higher.And then just also wondering what percentage of your customers are currently on an agreed upon forbearance plan at all and would that be included in your 30-day delinquency and annualized loan loss metrics if that is the case?

[John Olin:]

Thanks Felicia. The $45 million provision, you had mentioned up $10 million, you would have expected more. The provision is up on a year-over-year basis by the $45 million, so that is made up of two pieces. One is the write offs that we've taken of $8.9 million and then the increased reserve which is made up of the COVID crisis, as well as a kind of a booster with regard to that CECL accounting provisions. So that is…

[Felicia Hendrix:]

So John sorry, just – I'm sorry, I should have worded it more clearly. The increase in credit loss – I’m sorry, the $45 million increase in the credit loss provisions, that's what you thought was well, with the increase.

[John Olin:]

Yes, and so that is the little bit what we had talked about. At the end of the quarter we marked everything as of the data that was available on March 31, and given the data that we had, $45 million was the right number to book. Since then we have seen a significant deterioration in the economic data and the economy, unemployment, GDP forecast and all those types of things. So Felicia, we would expect that if things ended where they are today, the second quarter, we would have to take another increase in that provision and reserve more money at the end of the second quarter.

[Felicia Hendrix:]

Okay, and then on the forbearances if there are any?

[John Olin:]

No, we don't necessarily have a look at forbearance. What we do have is what we call customer extensions and as customers come in and they have issues paying because of COVID-19, we will look to extend the loan. It's a common practice that we follow and we followed it in areas that are impacted by hurricanes and other natural disasters. We're following that same process here and it allows the consumer a little bit of time to get themselves squared away and certainly helps our writers. So we are offering some extensions with regards to that.I don't know, when you talk about forbearance, if you're talking about on the wholesale side. We haven't seen any losses in terms of the wholesale side actually in years, but in the downturn 10 years ago we lost some dealerships and we lost – had some write-downs of those, and as you'll see in the financial results that we set aside $7.3 million of reserves on the wholesale side too, as we would expect losses going forward there as some of our dealers can't make it through this crisis.

[Felicia Hendrix:]

Okay, thank you.

[Operator:]

Your next question comes from Joe Altobello with Raymond James. Your line is open.

[Joseph Altobello:]

Thanks. Hey guys, good morning. So, I got a couple questions on Rewire. You know first, why do you think you guys are falling short in adding net new riders in the past, and what do you intend to do differently you know to increase the participation at the end of the quarter?

[Jochen Zeitz:]

Thanks Joe. Well, that's a good question. I mean you know the numbers of riders that we've created in 2019 and ’18. We had about $3.1 million Harley riders in the U.S. in 2019 at the end of the year. 55,000 more total riders than in 2018, but we also – June, basically a year of lost riders and that led us with the net of 24,000 more than before.I can't really tell you why that is the case that we weren’t able to create riders. You know we've been testing for initiatives to help drive bigger increases in total ridership to focus more on designing to accelerate the journey to becoming a committed rider, which includes providing access to motorcycles and individual training and that to others, through other initiatives were designed to retain existing riders and include trading epic riders and rewarding existing riders for miles riding and bring new people to motorcycling.We will evaluate those four initiatives as soon as we can. Obviously not now, because they are on hold, and then determine as part of the Rewire program, what we can do good and better to not only increase ridership by creating new riders, but also making sure that those are – those who are in this board will be retained. So I hope to be able to give you more details in the future as we define the Rewire program and as we can start testing again.

[Joseph Altobello:]

No, that’s pretty helpful. Just a question to follow up on that for you, because you know this is probably not how you wanted to be – see your tenure as a CEO start during a pandemic, but here we are. So with that said, are you considering moving the acting monitor at some point and taking on the CEO role permanently?

[Jochen Zeitz:]

Well, as I said Joe, you know at this point there's really nothing to add to what I said earlier. I'm you know focusing on developing and implementing the plan, and then also you know getting The Rewire program and playbook defined and implemented as we are looking to redefine our next new five year strategic plan.You know I knew pretty well what it was getting myself into, so no worries there, although nobody could have predicted the severity of the COVID-19 crisis. When I agreed to take on this role, I assumed this would be a tough right and – but I'm used to it, so.

[Joseph Altobello:]

Okay, great. Thank you.

[Operator:]

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

[Gerrick Johnson:]

Good morning! Thank you. Jochen Hi! You mentioned optimizing the dealer network. I know in the last couple of weeks there's been at least four dealership closures that I know of. So what's the plan to rationalize the dealer base? What does the new dealer base look like and what actions do you guys need to take to get there?

[Jochen Zeitz:]

You know, as you said, in fact we had five underperforming dealers in the U.S. that closed in the first quarter; we had 20 closures internationally. We don't know what this picture is going to look like as we get out of the COVID-19 crisis, so it's very hard to say. In the Great Recession we had about 100 dealers closing, but we had no prediction. Obviously we had some on watch, close watch and we do that on a daily basis.And then you know as dealers exit, there may be opportunities to merge dealerships as some might be bored up by existing dealer, some will go away, and as I said dealer optimizations will be important as a result, so that we can improve profitability of the dealers that are going forward. Other than that, I can’t really shed much more light on that, but we are looking at this very actively and we have good systems and plans in place to make sure that the dealer network will be strengthened in the future coming out of this.

[Gerrick Johnson:]

Okay, let me put it this way, prior to COVID was there a plan in place to rationalize the dealer base or is the optimization of dealer base a reaction to the COVID-19 crisis?

[Jochen Zeitz:]

It's a combination of both. Obviously you always need to improve your dealer network when you look at your mapping and existing sales, which change from year-to-year. So there was an ongoing plan, but that is being revised and fine-tuned and you know there are also opportunities that we need to look at that are you know allowing our dealers to sell online, which we've created as part of this crisis mitigation or our ability to deliver bikes you know with dealerships that are being closed. So there are also other ways to optimize the opportunities of existing dealers to sell, and that's what we’re also doing in the crisis.

[Operator:]

Your next question comes from Joseph Spak with RBC Capital Markets. Your line is open.

[Joseph Spak:]

Thank you very much. I guess you know with respect to rewire, this program sounds like a much narrower focus versus more of which was certainly I think trying to be broader and more exclusive and you certainly had a lot of build out in international growth, at least to this it sounds refreshing. But I'm wondering you know, you spend a lot of money over the prior years trying to broaden out the base. I mean how much of your – the investments that you’ve already made you think are sort of reusable or re-purposeable here as you begin to embark on The Rewire strategy.

[Jochen Zeitz:]

Yeah, it’s a good question. I think narrower for sure, but that does not mean as I said in my in my speech that elements of the More Roads plan will not be incorporated in our new plan going forward. A lot of it will depend on the crisis itself and The Rewire program that we are developing and as we go along in the development also implement. We will certainly ensure that a lot of the investments made you know will have a positive effect, but I'm not able or willing at this point to give any details.What I did say though is that our launch into Adventure Touring and Streetfighter segments and into Electric, those three segments we are committed to in the future and those took up a significant amount of our product development costs. So those will continue. The launch timing of those however as I also mentioned has been impacted by the crisis and we will make sure that we are ready with a very strong go-to-market process for each of them.

[Operator:]

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

[David MacGregor:]

Yes, good morning everyone and thanks for taking the question. Jochen, I wonder if I could get you to go back to some of the comments you made around The Rewire in your prepared remarks and in the press release, and in there you make reference to a cost structure that's adjusted to the new realities of the market post crisis, which obviously is a cost that should be addressed here, but it seems a little vague and I’m wondering if I could get you elaborate a little further and just exactly what it is you're trying to accomplish there.And I guess you know maybe as well, asking you to sort of offer some view based on your history as a member of the Board, but how do you think about what these assets should be generating in terms of target levels of profitability or return on capital.

[Jochen Zeitz:]

Yes, thank you. I mean obviously this crisis has an impact on our sales and that will have an impact on our cost structure, and while we cannot really define right now how big that impact is going to be and I understand that you know everyone would like to get us to give some guidance, but we simply do not have enough visibility to provide a forecast and therefore I can’t really answer your questions at this point.Hopefully with the second quarter we will be able to – assuming that we have better visibility than we have now and we’re starting to get out of these crisis, we can start focusing again, but we will certainly not do that until we have a clear view and that also you know applies to your last question in terms of target levels. All of that will be a part of the rewiring program and playbook and obviously our new five year strategic plan. So with that, we will then give you a clear guidance as to what we expect in terms of return on capital and so on.

[Operator:]

Your next question comes from Brett Andress with KeyBanc Capital Markets. Your line is open.

[Brett Andress:]

Hey, good morning. Just a clarification on the greater than 30-day delinquency rate that you reported. You mentioned softer trends at the end of March. So can you give any color on what that rate is right now, either here in April or what it was at the end of March? And then the second part of that question, is have you seen any increase in the less than 30-day delinquency rate as well.

[John Olin:]

Thanks Brett, this is John. Brett, on the 30-day delinquency rate we were very pleased to see that come down by 36 basis points. But remember a lot of that was due to what happened a year ago, and if you go back to 2018, I think we are still up about seven basis points, and that's probably mainly explained by CECL – I'm sorry by COVID and the last couple weeks of payments that got extended. There is no way to come out and do perfect do to on that, but over a two year period of time we are down a little bit and the biggest driver of that would be what we're seeing in the COVID crisis.The other piece of it is when you look at what's happening in less than 30-day delinquencies, what we are seeing is more of those extensions that I mentioned earlier. So we're seeing a lot of prime customers coming and saying that you know I need a little bit more time to pay because of COVID and then some of those were extending the time for that piece of it. So that's what we're seeing under 30-days, but I do not have an inter-period delinquency measure either on less than 30-days or on the 30-day plus.

[Brett Andress:]

Understood, thanks.

[Operator:]

Your next question comes from Adam Jonas with Morgan Stanley. Your line is open.

[Adam Jonas:]

Hey everybody! Jochen I’m going to try a third time, do you want to be CEO of Harley if the Board wants to remove acting? Are you an option?If you don't want to answer then it's a problem, because given the scope, you know this is probably the – that release in that strategy is so refreshing and must be a huge relief for your dealers, your employees, stakeholders, your investors. I know you've been on the Board since 2007 so I’m preaching to the choir, but that is a huge, huge open ended area and I just – and I'm not asking for you to break new ground here, but are you even an option?

[Jochen Zeitz:]

I take it as a compliment, thank you very much, but as I said, nothing to add at this point in time. But I will – I have hit the ground running and there's a lot to be done and we are very, very focused on implementing our plan and developing a new plan for the next five years. So you should be confident about that.

[Adam Jonas:]

Well, I guess and I don't have any other questions. It's just that, I hope you sympathetic to why that is potentially very frustrating and that by the time the second quarter is an opportunity for you to share more information on the plan, that it's fair at all stakeholders that there is a more permanent solution for leadership. And I hope, I hope and I hope that you're using everything and I'm sure you are, by 2Q at least we can be in a better position to answer these questions. Thank you.

[Jochen Zeitz:]

Certainly! Thank you.

[Operator:]

Your next question comes from Tim Conder with Wells Fargo. Your line is open.

[Tim Conder:]

Thank you. That was on my list, so I'll echo those things. But multi-part question here, on the retail, John any color on how very recent, let's call in March, on things have looked coming out of the oil patch areas, oil and gas just given the collapse we've seen there. And then, I did want to ask Jochen, any additional color you can give on the market refocus? It sounds like maybe Asia to style back and is it permanent or temporary change in your launch schedule of your – the annual new products. Thank you.

[John Olin:]

I'll start out with the first question Tim. On retail sales, you know it's really difficult to tell now, everything is down a lot. Almost 60% of our dealers are close, so everything is down. It's hard to tell apart what we're seeing in oil patch areas. We're still – we are certainly back into looking at it right, and that was several years ago we had a similar issue and certainly it had an effect on the motorcycle industry and Harley-Davidson sales. Folks that work in the industry and in those areas are very good customers and we understand where oil prices are and that there may be a knock on effect of COVID, but also on the lower oil prices.And as I had mentioned, some of our underwriting changes that we're making are taking those learning’s from several years ago and applying them here. But I can't separate out, because of dealer closures and whatnot, where we're at in oil patch states versus others.

[Jochen Zeitz:]

Yeah and to your other two questions in terms of refocusing on markets, I mean definitely I will strongly believe we need to tie the focus on our core markets and as I had mentioned, you know there are some markets that our biggest profit drivers. U.S. need more focus going forward. Some of the international market, not just from a profitability point of view, but from a potential point of view and I think there will certainly be some deemphasizing in order to create increased focus.I mentioned earlier, you know it's about speed, it's about focus, it's about reducing complexity, which will help us to you know set our organization up for a really profitable future and that means focusing on key markets as well.In terms of the timing of our launch schedule, that is a permanent change. As I’ve mentioned, we've retimed our model year changeover from August to early Q1 in order to allow a launch calendar for the first time in our history to align with the start of the riding season. That made all the sense to me and I don't see any reason why we should go back to the old schedule, so that's a permanent change.

[Operator:]

Your next question comes from Sharon Zackfia with William Blair. Your line is open.

[Sharon Zackfia:]

Hi, good morning. Hey John, I might have missed this, but could you talk to us about what your current weekly cash burn rate is and then separately on the $250 million that I think you guys are targeting in the terms of preserved liquidity, can you break that out between CapEx versus what’s going through the P&L?

[John Olin:]

Thanks Sharon. When you look at our overall cash burn, less the $250 million that we took out, we are in the range of anywhere between $80 million and $100 million a month, right, and that's pretty simple too as you take $1 billion of SG&A and divided it through and take-off a couple of hundred million dollars and we’ve got the fixed cost in the plants to run the plants that are running through cost of goods sold without the dividend; the dividend significantly being reduced. And we’ve got some interest payments in there of – I don't know, $15 million a quarter.So on an overall burn rate of somewhere in the $80 million to $100 million a month and again as I had mentioned, given the liquidity that we have now, the debt that we have that will be maturing in the near future and again Sharon, based on assumptions that we have absolutely no revenue. Our revenue is down very significantly in the first 3.5 weeks of April, but we still have revenue.So with those assumptions, we've got enough runway to make it to the end of the year and a little bit into next year. So we feel very good about that. We haven't broken out the $250 million into its pieces, but it is predominantly made up of SG&A expense.

[Operator:]

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

[Jaime Katz:]

Hi, good morning. I'm not sure if you guys have this bifurcated out, but not all states have shelter and place orders. So could give us any insight into how the dealers are doing and shattered versus non-shattered space if there’s any information to share there. Thanks.

[John Olin:]

Jamie, it’s pretty difficult you know to piece that out. When we look at it in totality, we can see that the dealers that are selling are outperforming the dealer closures that we have. And again as we sit here today, 59% of our dealers are closed, however our retail sales in the first 3.5 weeks of April are not down that much, so that does suggest that the dealers that are open are selling at year ago levels. But we don't have an analysis or we don't have anything to share with regards to exactly which states they are.

[Shannon Burns:]

Alright, thanks everyone. 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 12. The ID is 772-6817.

[Jochen Zeitz:]

And thanks Shannon and John, and thank you for your time this morning; for your interest and investment in Harley-Davidson. As the pandemic persists, we will continue to protect the wellbeing of our people and the strength of our business.I'm confident that Harley-Davidson Rewire will result in a company that is less complex, which is sharp and focused and makes decisions faster. I look forward to sharing more during our second quarter update. Stay well everyone.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.