Harley-Davidson Inc (HOG) 2021 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Harley-Davidson 2021 Fourth Quarter and Year-End Investor and Analyst 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, everyone. 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 investor.harley-davidson.com.

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, Gina Goetter. In addition, Chief Commercial Officer, Edel O'Sullivan will join for the Q&A.

Jochen, let's get started.

Thank you, Shawn, and good morning, everyone. Thank you for joining us today.

As we conclude the first year of the Hardwire, our 5-year strategic plan to drive profitable growth, Harley-Davidson delivered a strong finish to 2021. We are very pleased with our performance, especially in light of the many challenges that '21 brought us. We are particularly encouraged that the proof points of our delivery against the strategic pillars of the Hardwire are visible across the board.

We anticipate the momentum from strong '21 to continue into '22, and I'm very optimistic about the great potential of Harley-Davidson in the coming years, especially when we look to what we achieved with Rewire and our delivery of our Hardwire milestones over the past year as part of the huge transformational journey the company is on. However, we are mindful of the significant supply challenges that we expect to continue to impact the industry.

With Rewire, we realigned our organization, creating a culture of performance, efficiency, focus and speed. In unlocking this potential, we set the company's foundation for success, built around a completely new leadership team.

And building on Rewire, in February 2021, we launched the Hardwire. This positioned Harley-Davidson with capabilities, assets and the legacy unmatched by any competitor as the most desirable motorcycle brand in the world, backed by the leading positions in the most profitable segments.

Rooted and desirability, The Hardwire continues to strengthen and build the brand, deepening loyalty, creating value and driving engagement across both existing and new consumers.

I will briefly address our strategic pillars and our delivery against 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 untapped potential to inspire more engagement, while compelling new customers and riders to choose Harley-Davidson.

Our data shows that in 2021, the Touring segment grew, thanks to our strong performance in this category. And as we look ahead, we will continue to focus on growing our stronghold segment.

With The Hardwire, we made a commitment to introduce a series of motorcycles that align with our strategy to increase desirability and to drive the legacy of Harley-Davidson. In this context, we launched our Icons Collection, our new limited-edition series of extraordinary adaptations of production motorcycles, which look to our storied past and bright future. The collection debuted with the Electra Glide Revival, the ultimate tribute to our heritage in Grand American Touring with production selling out from launch.

Selective expansion. We are committed to focusing on opportunities in profitable segments aligned with our capabilities and that offer a clear path to market leadership. '21 saw the launch of Pan America, our first Adventure Touring motorcycle. From the outset, we saw the potential of the Adventure Touring category. As of today, it is the second fastest-growing category in North America.

The immediate success of Pan America resulted in selling out our allocation throughout the production year and has led to Pan America becoming the #1 selling Adventure Touring motorcycle in the U.S. in 2021. Not only has this product outperformed, but it has also redefined its category with its riders customizing the Pan Americas in ways only Harley-Davidson can deliver. We continue to see the potential for Pan America across the globe, especially in Europe, the largest market for venture touring, building on our Rev Max platform.

'21 also saw the launch of Sportster S, a bike that has brought the Harley-Davidson brand to greater customer sets beyond our stronghold segments like no other. With sport as the fastest-growing category in North America, we realized the potential of the Sportster S to engage and bring new riders to the Harley-Davidson brand.

As we look at our delivery against selective expansion, we successfully launched 2 bikes that were amongst the fastest selling motorcycles in our portfolio, against the backdrop of acclaim and overwhelming positive media coverage, with waiting lists extending into this year.

Importantly, both these launches were delivered with a strategically streamlined portfolio aligned to our Hardwire goals that saw a model in SKU count reduced by 40% since 2020, allowing us to focus on the very best that Harley-Davidson has to offer. Looking forward, we'll continue to test further avenues for desirable long-term growth.

Lead in electric. Electric motorcycles are important to Harley-Davidson's future, and we remain committed to staying at the forefront of electric motorcycle technology. In 2021, we not only stood up LiveWire as a stand-alone brand, but we also announced that through a business combination agreement with AEA-Bridges Impact Corp., LiveWire would become a publicly traded company on the New York Stock Exchange. The transaction is expected to close in the first half of this year, and we are very excited about the potential for LiveWire to be the most desirable electric motorcycle company in the world.

The LiveWire team began scaling the retail network in the back half of 2021, building on our 12 original partners. The network has grown from 20 retailers at the end of Q3 to 49 retailers as of February 1. We are also looking forward to introducing the first product on LiveWire's new Arrow architecture in the second quarter of this year.

We believe that LiveWire will drive incremental business and help us to expand our reach and business in the coming decades through pioneering the electric motorcycle market and developing the technology of the future. For LiveWire, this is just the beginning.

Growth beyond bikes. Harley-Davidson Financial Services, H-D1 Marketplace, Parts & Accessories and General Merchandise are important drivers of the company's future success as a global lifestyle brand, providing untapped potential to grow our customer base and adds to customer lifetime value. HDFS is an important asset to Harley-Davidson from both a brand and revenue point of view. And as we look ahead, we look forward to widening our HDFS offering to new markets.

In '21, we also launched H-D1 Marketplace, the ultimate destination for preowned Harley-Davidson in America, backed by the strength and scale of our dealer network and enhanced by the Harley-Davidson certified program for extra peace of mind. The H-D1 Marketplace platform is connecting our customers, community and our strong dealer network. H-D1 Marketplace is just the first step towards our ambitious transformation of h-d.com into the leading online destination for everything Harley-Davidson.

And as we look to the future, we want our online presence to connect and support our HD network from enhanced online experiences, unique community engagement to exclusive content and learning. With personalization at the heart of motor culture and the Harley-Davidson brand, Parts & Accessories is in a growth area for the business.

Last year, revenue grew 13%, and we believe there's potential to continue that growth trajectory as more riders look to make the Harley-Davidson uniquely theirs. We feel very positive about the performance of our General Merchandise business with 23% growth for the year.

Last week, we announced the strategic rename of our General Merchandise business to Apparel & Licensing, with the appointment of a senior executive and creative director to help build the business.

The potential to grow both our Apparel & Licensing businesses, leveraging the power of the Harley-Davidson brand across the globe is huge. The potential of the Harley-Davidson brand beyond bikes is significant. We're one of the most recognizable brands in the world. And as we grow our lifestyle products to reach wider audiences, we know that people will want to be part of our brand, be it through the strengthening of our retail product, our online community and our loyal riding communities.

Customer experience. By putting customers at the forefront of our products, experiences and investments, we are able to define customers as people who simply love our products, whether they don't ride but love our brand, those who may dream of motorcycling and have just learned to ride, all the way to committed riders who are deeply passionate about and invested in our unique lifestyle brand and culture. We continue to invest in and redefine our overall customer experience through our dealerships and especially in our online presence as we know many customers start their journey with Harley-Davidson online.

Our e-commerce functionality has been improved to include customer notifications on restocking and now features our bike builder platform for select motorcycles. Looking ahead, we will continue to invest in our digital capabilities, ensuring the best-in-class customer experience.

And lastly, inclusive stakeholder management. Our approach to optimize long-term value for all stakeholders, we view inclusive stakeholder management in the context of people, planet and profit, with all 3 deeply embedded in the past and future success of the Harley-Davidson brand and company.

'21 saw us implement The Hardwire grant. For the first time in our company's history, all our employees around the world including at our factories became shareholders in our company, demonstrating a renewed commitment to Harley-Davidson as not only a great brand, but a great company and a great employer.

Now I'll hand over to Gina to run through the numbers.

Thank you, Jochen. Fourth quarter results reflect continued demand momentum as evidenced by our strong wholesale unit growth and retail sales growth across North America. While we continue to deal with a challenging supply chain and inflationary environment, the actions that we took as part of The Rewire and Hardwire strategy throughout the year have resulted in a leaner cost structure and overall margin expansion.

Looking more closely at our financial results in the quarter, total revenue of $1 billion was 40% ahead of last year behind increased motorcycle shipments, favorable motorcycle unit mix, pricing and growth across all of our other businesses, including General Merchandise, Parts & Accessories.

Total operating loss of $7 million was an improvement over last year, with gains across both of our reported segments. The Motorcycles segment, which includes our newly renamed Apparel & Licensing business, and Parts & Accessories products, delivered an operating loss of $102 million compared to a loss of $196 million last year. Remember that Q4 is impacted both by seasonality and lower wholesale shipments due to the change in our model year launch to the beginning of the calendar year.

Fourth quarter GAAP earnings per share of $0.14 compares to a loss of $0.63 last year. When adjusted to exclude the impact of restructuring charges, our adjusted EPS was $0.15 and compares to an adjusted loss of $0.46 per share last year.

Turning to full year 2021 results. Revenue of $5.3 billion was 32% ahead of 2020 and operating income of $823 million was $814 million ahead of last year. Full year results reflect strong revenue and profit growth over the pandemic impacted results of 2020 as well as the positive impact to margin as a result of our cost reduction actions, improvement to our unit mix and pricing.

Full year 2021 GAAP earnings per share of $4.19 compares to GAAP earnings per share of $0.01 last year, while adjusted earnings per share of $4.21 compares to adjusted earnings per share of $0.53 last year.

Global retail sales of new motorcycles were up 2% in the quarter, with growth in North America offsetting declines in our international markets. North America Q4 retail sales were up 8% versus last year, driven by 23% growth in Grand American Touring, the launch of Sportster S as well as our continued success with Pan America.

In our international markets, the retail sales declines continued to be impacted by the actions we took during the Rewire to exit markets and prune unprofitable models. Consistent to what we reviewed in Q3, EMEA and APAC sales continue to be disproportionately impacted by the decision to exit the unprofitable Street and legacy Sportster bikes. And in Lat Am, the declines from the model pruning and market exits were accompanied by pricing increases across select models, resulting in improved region profitability.

Worldwide retail inventory of new motorcycles was down 23% versus last year, and down a similar amount relative to the previous quarter, primarily due to strong demand, in particular, in the U.S. market. Overall, we continue to see strong pricing dynamics for both new and used motorcycles, and we continue to see improved profitability at the dealer level. In light of more limited retail inventory, we have also put in place a reservation system that has been met with great support by both dealers and customers.

Looking more closely at revenue. Total Motorcycles segment revenue was up 54% in Q4 and up 39% for the full year. Focusing on Q4 activity, 36 points of this growth came from higher year-over-year wholesale volume for motorcycle units, driven by growth across our core Motorcycles segment as well as meaningful growth in Parts & Accessories and the General Merchandise and Licensing businesses.

13 points of growth came from mix due to a larger percentage of touring bikes sold in North America and 6 points of growth from pricing and incentives, primarily due to the pricing surcharge in the U.S. that was put in place to partially offset raw material inflation. And finally, 1 point of negative impact from foreign exchange. Drivers for full year revenue growth are consistent with what played through for the quarter.

Turning to margins. Q4 gross margin of 19.5% was down 2.1 percentage points versus prior year. A margin benefit from stronger volume, profitable mix and pricing was more than offset by the negative cost headwinds across the supply chain and additional EU tariffs.

In the quarter, the impact from the additional EU tariffs was approximately 1.3 percentage points of margin. Q4 operating margin finished at negative 12.5% compared to negative 37% last year due to materially lower operating expenses this year and heavier restructuring charges in the prior Q4.

Full year operating margin of 9% was significantly ahead of last year, given the impact of the pandemic and was also 2.7 points ahead of 2019. Despite the absolute unit decline versus 2019, which drives the negative margin headwind, the focus to a more profitable mix and a leaner cost structure has significantly strengthened the overall margin profile for the business, even with the inflationary supply chain environment.

The Financial Services segment operating income in Q4 was $95 million, up $18 million compared to last year, driven by lower interest expense and lower restructuring costs, partially offset by higher provision for credit losses as loss rates begin to increase back towards historical levels.

HDFS' retail credit loss ratio remained historically low at 1.2%, a 19-basis point improvement over last year. Overall, retail delinquency rates have been favorably impacted by the improved economic conditions and the benefits provided to individuals under the federal stimulus packages early in 2021. Delinquency rates have continued to run lower than pre-pandemic historical levels, and we do expect these rates to begin to normalize in 2022.

Looking at HDFS' base business. Retail originations in Q4 were up 25% versus last year behind strong new and used motorcycle origination volume. Ending retail finance receivables in Q4 were $6.5 billion, which is up 2.4% from last year.

In addition, the retail allowance for credit losses at the end of Q4 was 5%, which is relatively unchanged from Q3. And while today's allowance rate has improved versus the peaks of 2020, it is still above pre-pandemic levels given the continued uncertainty surrounding the pace of economic recovery.

Wrapping up with Harley-Davidson, Inc. financial results. We delivered full year 2021 operating cash flow of $976 million, down $202 million from last year. Operating cash flow declines were a result of unit growth and increased loan originations across HDFS. And total cash and cash equivalents ended the quarter at $1.9 billion, which is $1.4 billion lower than last year as we worked on higher cash balances held as a result of the pandemic.

As we look to our financial outlook for 2022, we expect HDMC revenue growth of 5% to 10%. This revenue growth forecast incorporates what we know today in terms of the impact of the semiconductor challenges that the industry is facing. We expect revenue to be positively impacted by our global pricing actions as we work to offset the cost headwinds across the supply chain. Furthermore, we expect the Parts & Accessories and Apparel & Licensing businesses to accelerate top line growth in line with our Hardwire strategy.

We expect HDMC operating income margin of 11% to 12%. We believe the anticipated positive impact from volume leverage, unit mix and pricing, combined with growth across our margin-accretive businesses of P&A and Apparel, will more than offset the expected cost inflation across supply chain. Also, the removal of the additional EU tariffs realized in 2021 contributes over 1 point of margin growth. Finally, we expect 2022 margins to also be positively impacted by operating expense leverage even as we increase investment behind LiveWire.

We expect the HDFS operating income to decline by 20% to 25%. This decline is largely a result of the favorable allowance releases and lower credit losses in 2021. We believe this favorable impact is not likely to repeat itself in 2022.

And lastly, we expect capital investments of $190 million to $220 million as we continue to invest behind product development and capability enhancement in support of our Hardwire strategy.

This financial guidance is reflective of the supply chain outlook that we have at this time. We are forecasting that the operating conditions and higher rates will hold in the first half of the year, and we anticipate a moderate improvement versus prior year in the back half across logistics and raw materials.

Semiconductor availability is expected to be challenged, assuming improvements in the latter half of the year. Embedded within our guidance for 2022 is LiveWire. At this time, we remain committed to the outlook issued as part of our December 13th announcement.

Finally, as we look to the 2022 capital allocation, our priorities remain to fund growth of the Hardwire initiatives, which includes the capital expenditures mentioned previously.

We will also paid dividends. And yesterday, we announced an increase in our first quarter 2022 payout to $0.1575 a share, which is up 5% versus prior year. In addition, we plan to execute discretionary share repurchases in 2022, and we have 18.2 million shares remaining on our Board-approved share repurchase plan.

At this point, I'll turn it back over to Jochen, who will wrap this up.

Thank you, Gina. To round out today's presentation, I want to provide some highlights from our most recent launch event in January entitled Further. Faster., which hopefully many of you were able to see. If not, please check out the content online.

This year, we focused on our stronghold profitable segments, unveiling a selection of powerful new Grand American Touring, Cruiser and Custom Vehicle Operations in short CVO motorcycles for this year. This reveal consists of 8 new models, each powered by the Milwaukee-Eight 117, the most powerful factory installed engine offered by Harley-Davidson. In the Grand American Touring line, we introduced the Street Glide ST and Road Glide ST. For Cruisers, we introduced the more powerful Low Rider S and the Low Rider ST. And for CVO, we introduced 4 super premium models.

The virtual event attracted over 1.5 million views on the launch page on harley-davidson.com and over 540,000 views of the launch, fame and content. We also saw over 120,000 people sign up to the event, a 50% increase compared to 2021.

Most notable was the response to the Low Rider ST, the latest in our Cruiser lineup. Demand was so high for this bike that we sold out our first consumer allocation in 10 minutes. This is just one example that highlights the strong desirability that we've been able to build through our strategy for our brand and product. As ever, we look forward to bringing you more. So stay tuned for some more product news to come this year from Harley-Davidson and LiveWire.

And just before we head to questions, I'm happy to announce that in May, we will be hosting an Investor Day for Harley-Davidson and LiveWire, updating you on our exciting road ahead. I hope you can join us in Milwaukee.

Thank you for your time this morning, and now we'll take your questions.

(Operator Instructions) Your first question comes from Craig Kennison from Baird.

It's a big picture question on Hardwire. I know last year, you provided guidance that EPS in 2025 would grow at a CAGR of a low double-digit pace, but we never knew what 2021 EPS would be. Now that we know 2021 EPS was $4.21. If we apply, let's say, 10% to 12% CAGR growth on that, it would get to 2025 EPS guidance in the $6.15 range to $6.60 range. Am I doing the math right on the guidance you offered for LiveWire?

You mean for Hardwire, Craig? This is Gina.

Yes, Hardwire, sorry.

Yes. Yes. Good question. When we initially launched The Hardwire targets, right, we said it was based on where we finished in 2021 and then we would grow from there. So as our performance this year was better than our original guidance, if you would apply the initial target that we put out there last year, I think you're doing the math right.

As we kind of get towards the Investor Day in May, what you can expect to see from us is how pieces like LiveWire come to light differently as part of The Hardwire and how that accelerates the initial guidance that we put out for The Hardwire targets back, I think, about a year ago now.

Does that answer your question, Craig?

So yes, generally, I guess. Can we endorse the $6.10 to $6.50 range roughly?

Since we're not changing our long-range targets today, you're doing the math correctly. What I'm saying, though, is when we put out the targets last year, LiveWire as was envisioned was not set up to be a stand-alone company. That is a material change to our outlook that as we get towards our Investor Day in May, we'll be helping you put together the pieces of how that updated outlook matches with what's going to be ICE business to provide a new long-term projection.

So in short, Craig, standby for updates in May.

Your next question comes from Robby Ohmes from Bank of America. Again, your next question comes from Robby Ohmes from Bank of America.

I'm sorry, can you hear me okay?

Yes.

Yes.

Sorry, I'm not sure what happened there. So my question -- my question is on Motorcycles revenue growth outlook for 2022. Can you help us think through how you've had really strong price increases supporting revenue growth in '21? What's the sort of -- what should our thinking be on price increases? And also, what should our thinking be on international unit sales returning to growth?

Robby, this is Edel O'Sullivan. Thank you for your questions. So let me take the latter part of the question, and then I'll turn it over to Gina for more specifics on the pricing element.

So in short, we think that there is a demand in the market, that is both domestic and international. Obviously, this year still continues to be impacted by actions. And by this year, I mean, 2021 continue to be impacted by actions taken during The Rewire, particularly in our international markets.

But we do expect as we look to '22 and beyond, of course, subject to the reality of the supply chain that we will be seeing some of that increased demand placed in our international markets as well, I may say, in our domestic market.

And Robby, this is Gina. On the pricing question. In 2021, our pricing was really limited to the surcharge that we put in market in the U.S. As we move to 2022, pricing will be global and have both mechanisms of both surcharge as well as MSRP pricing depending on the market. So we move from a very U.S.-based pricing mechanism in '21 to a global pricing mechanism as we move throughout 2022.

Got you. That's helpful. And so the 5% to 10% does include some pricing benefits to the sort of unit volume assumption on the motorcycle side, could be viewed as conservative?

Wait. What's the last part that is viewed as conservative?

Yes. It sort of implies that the unit volume growth would be obviously less than 5% to 10% on the Motorcycles division. So it could be potentially as conservative for your unit assumptions given the demand you're seeing?

Well, what we said clearly is the supply chain issues are not going away. In fact, they intensify going into the year. And hence, our guidance is realistic from today's perspective and what we are seeing in the supply chain.

Got it. That's really helpful.

That said, we have solid demand for our product. And for those who witnessed our -- the launch of our '22 model year, it's been exceptionally well received. So it's just a question of supply and not a question of demand.

Your next question comes from Billy Kovanis from Morgan Stanley.

Just a follow-up on the last question there. Can you give us your embedded assumptions for retail sales versus more of a production restock in 2022 for that 5% to 10% Motorcycles revenue growth?

Well, it depends on the range of the guidance, right? If you assume price increases and the lower end of the range, then you would see small or more little unit growth. And as you move towards the higher end of the range, you would assume unit growth, and that would be captured in retail as well as in wholesale.

Yes. Billy, this is Gina. Based on where our inventory positions sit, you can -- the unit assumption and the unit growth assumption for wholesale is pretty much is going to ladder up to what we would say for retail's as well.

Got it. And just a real quick follow-up on the margins, really strong outlook there, 11% to 12%. Can you just break that down a little bit further? How much of it is sort of operating leverage? How much of it is the EU tariffs being sort of mitigated? Any other expenses that you're sort of taking out? Higher mix? Exiting unprofitable markets? Just any other color you can provide on the margins.

Sure. Sure. I'll start with the kind of the easy one. The EU tariffs and removing that additional tariff is worth about a point. So as we move from '21 to '22, about a point of that is tied up there. We also have a positive volume and mix and then the pricing component that we talked about earlier, that is a positive headwind that helps you offset -- more than offset what's coming at us from a supply chain standpoint.

Your next question comes from Fred Wightman from Wolfe Research.

I was hoping -- maybe it's a question for Gina, but given the guidance is expecting some second half improvement. Can you just give us a little help on the cadence as we move through the year? It sounds like the supply chain got a little bit worse into the first quarter. But should we be expecting steady improvement as we move through the year? Is there really a step function increase in the back half of the year? How does that sort of shake out from a timing perspective?

Yes. Good question. I would say that we improve as we move through the year. So our back half will be better than our front half, just again, given what is coming at us from a supply chain standpoint. So when you think about our cost inflation environment as we move through '21, every quarter, we kind of saw more inflation, but the first half of '21 was less than the back half of 2022.

And so now as we move into '21 -- I'm sorry. And then as we move into 2022, we still have kind of another half of inflation that kind of matches up where we ended the year. So I would definitely see the cadence as being -- we accelerate as we move to the back half.

To emphasize, that assumes an improvement in the supply chain in the second half. Visibility is relatively limited at this point in time. So that's based on what we know today and that the supply chain overall sees some -- sees improvements in the second half.

Makes sense. And then just as a follow-up, could we walk through the bridge on the CapEx outlook? Midpoints over $200 million, you guys came in just over $140 million, I think, this year. So any big projects or big things that sort of get you from '21 to '22?

I think the biggest step change you'll see is within LiveWire itself. So given -- and the investment that we're putting behind EVs. We're also going to continue to build on our core innovation pipeline, and you'll hear more about that as we're moving through kind of this year. And then we continue to invest in capabilities. We've talked previously on calls about our digital ecosystem and building up things like the marketplace, our used platform, that type investment continues as we move through 2022.

Your next question comes from Joe Altobello from Raymond James.

Just first question, I just wanted to clarify something you mentioned earlier, Gina, about wholesale and retail. It sounds like you expect wholesale and retail to be really equal this year. And so no pipeline fill opportunity in '22, is that correct?

I would say there's going to be limited pipeline fill capability, just given the supply constraints that we have. So I see those 2 moving more in sync throughout 2022.

Okay. And then...

So if I could add to that...

Yes, sorry, go ahead.

Just to add to that, Joe, from the perspective of what is happening overall with inventory levels. I think you will see that our dealers and indeed the entire network has become much more efficient in how we manage retail sales inventory. So we have become, I think, much better at managing a level of retail sales that requires much less inventory in the system. And some of that is obviously the work of our dealers to support the sales and the customer demand, but also tools that we have put in place like our preorder and reservation system that allow us to capture that demand much more efficiently.

So I would expect as we go through '22 and beyond that we will continue to make some of those changes and innovations to allow us to support retail sales growth with a very different position on inventory that wouldn't have been the case historically.

Very helpful. And just maybe on LiveWire. The slides that you gave us in mid-December showed an EBIT loss for LiveWire in '22, about $111 million. I just want to confirm, is that what's baked into the 11% to 12% margin for that segment?

Yes, yes. We have not changed our LiveWire assumptions.

Your next question comes from Gerrick Johnson from BMO Capital Markets.

My question is on the tariff situation. It seems like inconsistent presentation over the quarters, so sometimes it's excluded as nonrecurring items, sometimes it's not. It didn't look like it was this quarter, but you did call it out. So that changes our starting point a little bit in relation to Craig's question as we roll forward a compounding our growth assumptions. So should we go back and put all those tariffs back into our numbers for '21 and 2020, EU tariffs?

No, this is Gina. No, I would not add them back in. When you go back to our original Hardwire target that we gave, we did not have tariffs built into there. If you go back to the original guidance all the way back a year ago that we gave on '21, there were no tariffs included. And in the outlook, I should say no additional tariffs included. And then the outlook that we gave for the next 5 years also didn't include these additional tariffs.

Your next question comes from David MacGregor from Longbow Research.

I guess I wanted to ask about the Pan America. And you referenced already the expectation that supply channel issues don't improve, at least significantly as 2022 rolls out. How are you thinking about availability on this product? And obviously, a lot of excitement, but you need to get it into the hands of the dealers. So what are you looking at for 2022 there?

Well, availability overall has been constrained. And everything we've sold into the market has pretty much sold through. So -- and we expect that to continue. That said, we had -- we were able to deliver a significant amount of Pan Am's that made us the #1 model in the Adventure Touring market already last year, and we expect to continue to deliver a solid amount of Pan Americas also this year. But everything from -- everything taken together, Pan America, just like other products are supply constrained.

Does the availability inflect at some point throughout the year? Or is it just kind of a slow gradual improvement as the year unfolds?

Impossible to predict at this point in time. It's literally a day-to-day valuation of the components that you're getting or not getting and adjusting your production accordingly. So it's very hard to predict at this point in time.

And I guess just related to that, Jochen, just thinking about the strategic value of light Cruisers and obviously, limited profitability opportunity, but it also gathers new riders into the brand. How are you thinking about light Cruisers longer term?

Well, nothing to add to what we've said in the past. We'll be commenting on new models when we launch them or if we launch them to the market. So I'd say standby for more.

Your next question comes from Jaime Katz from Morningstar.

I'm hoping you guys would be willing to talk about how you perceive the long-term growth algorithm for Apparel & Licensing given the new hires behind the business and the fact that now looks like that might be something that grows maybe above historic levels?

Jaime, well, as you know that I'm very positive about the growth beyond bikes and that primarily includes Apparel & Licensing in addition to Parts & Accessories, and we will be upping our game in both categories going forward. I'm not going to quantify it at this point. I'd say stay tuned for more in May. We'll be talking about that, that will be part of our presentation.

But we feel confident the brand has very strong appeal in different consumer groups, different age groups that we want to capture, and that's why I've decided to strengthen the team now and make it a direct report as well to really tap into the potential in the coming years. It's not something that will happen overnight, but that -- it's really exciting if you apply a long-term perspective.

Okay. And then just as a housekeeping, I think we should see some sort of filing for the LiveWire offering. Can you give us any insight on the timing of that just so we could get more detail?

That's out today, so you'll be able to access it. The S4 was filed today.

Excellent.

Happy reading.

Your next question comes from Ryan Sundby from William Blair.

I guess with modeling, and since you have down about 40% since 2020, is the reshaping of the portfolio work done here? And are there any opportunities where if you maybe see areas to focus more or maybe areas where you pulled back too far? Just any color there would be great.

Definitely not too far. There's always more opportunity to fine-tune our product mix. I mean going into The Rewire, it was just a lot of products out there that cannibalized itself. And we took the reduction to 30%. If you remember me talking about that back then, and we saw further opportunity and took to 40%.

That said, it's plus or minuses. Now I wouldn't say we are adding new models necessarily without taking others out. I'd say 40% is a good base going forward, but we continue to look at more opportunities and we'll always ask the question when and if we introduce a new model, if there's another one that we could take out because it's cannibalizing the overall portfolio.

But 40% is a pretty solid number that we initially didn't actually think we would achieve, but we actually overachieved that number already last year.

That's helpful. And then I guess just with the units up this strong in Q4 here, was there any change in approach to the -- like I said, the shipping cadence that you kind of laid out under Hardwire?

No. No. Continue to -- Q4 is a suppressed kind of wholesale unit shipment just as we changed that model year launch at the beginning of the calendar year. No change.

There is no further questions at this time. And this concludes today's conference call. Thank you all for joining. You may now disconnect.