Thank you for standing by, and welcome to the Harley-Davidson 2022 First Quarter 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. Welcome to our Q1 2022 earnings call. 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. Before we get into the quarter's results, I want to take a moment to recognize the devastating war that continues to unfold in Ukraine. On March 1, following the invasion of Ukraine, Harley-Davidson announced that we were suspending our business in Russia.

This remains unchanged. At Harley-Davidson, our response to the humanitarian crisis has been driven by the core element of our mission as a brand, Freedom.

Whether through the philanthropic donations we've made to organizations like United Way or through the efforts of our employees and the wider whole community donating time, money and resources to provide aid to those in need. It is that spirit of freedom underpinned by community that has driven our efforts.

A key initiative pioneered by the company has been a fundraising t-shirt designed by our employees. We've partnered with two charities delivering aid to those in need, United Way and Open Mind. And we're committed to support these organizations and their incredible work as long as needed. With that, I'll move on to our results from the quarter.

We started the fiscal year with good momentum across the business, underpinned by strong global consumer demand for our products. First quarter consolidated revenue was up 5% to $1.495 billion, driven primarily by HDMC revenue growth.

And while we are pleased with our start to 2022 and anticipate the momentum to improve during the year, it's important to acknowledge the significant supply challenges that we had to work through in Q1 and that we expect to continue to impact the industry.

We are cautiously optimistic on improvements to the supply chain environment in the second half of the year. However, this remains difficult to predict with certainty. That said, the brand is getting stronger and more desirable as we continue to delivery of our Hardwire milestones as part of the huge transformational journey the company is on.

At the last quarter, we provided a comprehensive recap of our delivery against both the Rewire and the Hardwire, including the important realignment of our organization, creating a culture of performance, efficiency, focus and speed. In unlocking this potential, we set the company's foundation for long-term success.

In May, we will be presenting a comprehensive update to our Hardwire strategy. So today, I will only briefly address some highlights from the quarter aligned to our strategic pillars and our delivery against them. Profit focus.

As you know, 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 have untapped potential to inspire more engagement, while compelling new customers and riders to choose Harley-Davidson.

With Hardwire, we made a commitment to introduce a series of motorcycles that align with our strategy to increase desirability and to drive and build on the incredible legacy of Harley-Davidson.

In this context, in January at our Further Faster model year launch, we added extra performance in factory custom style to our 22 motorcycle lineup with the reveal of eight new models, each powered with the Milwaukee-Eight 117, the most powerful factory installed engine ever offered by Harley-Davidson for those riders who want nothing but the biggest and the best, building on our position as the most desirable motorcycle brand in the world.

New models included the Street Glide ST, the Road Glide ST and the Grand American Touring Line, the more powerful Low Rider S and the new Low Rider ST cruiser models and four super premium models from Harley-Davidson Custom Vehicle Operations, CVO. Since launch, the response to this performance-driven lineup has been very strong.

And as the market leader, we look forward to building on our performance-driven legacy in these segments. We believe the demand that we are seeing is a good indicator of the desirability that we've been able to build for our brand and product. Lead in electric.

Electric motorcycles are important to Harley-Davidson's future and we're committed to staying at the forefront of electric motorcycle technology. LiveWire continues on its mission to be the most desirable electric motorcycle company and brand in the world.

Building on our announcement from last year, the LiveWire transaction remains on track as we work towards the listing in Q2. We recently opened the first LiveWire Experience Center in Malibu with one of our first in-person events since the pandemic began. The consumer awareness to the brand is building and the interest in EV continues to grow.

Growth beyond bikes. Harley-Davidson Financial Services H-D1 marketplace, parts and accessories, apparel and licensing are important drivers of the company's future success as a global sport and lifestyle brand, providing untapped potential to grow our customer base.

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. This quarter, we've seen retail credit losses begin to normalize resulting in a higher provision for credit losses, partially offset by lower interest expense.

This quarter saw particularly strong performance from parts and accessories, especially in North America.

With personalization at the heart of motor culture and the Harley-Davidson brand, we believe parts and accessories is a long-term growth area for the business and that there is strong potential to continue growth trajectory as more riders look to make Harley-Davidson uniquely theirs.

This quarter is the first time we are reporting apparel and licensing as a separate business unit. The quarter saw modest growth in apparel against a challenging supply backdrop and strong growth in our licensing business.

Looking ahead, we're excited that the potential to grow both apparel and licensing, leveraging the power of the Harley-Davidson brand across the globe.

And lastly, this quarter saw the publication of our annual Inclusive Stakeholder Management Report, highlighting some of the key achievements by the company through inclusive stakeholder management in the context of people, planet and profit.

We continue to redefine and evolve our brand and company with inclusive stakeholder management as one of our six strategic priorities.

The report highlights include prioritizing people through the implementation of the Hardwire brand, preserving our planet through our commitment to reduce carbon emissions and creating a path to achieving net zero carbon emissions for Harley-Davidson by 2050 and for LiveWire by 2035, and promoting social profit through the Harley-Davidson Foundation's investment into our home neighborhood in Milwaukee, making it not only a great place to work but a great place to live and visit.

We have much to be proud of and much to look forward to in the years ahead. And before I hand over to Gina, I want to reiterate that we're looking forward to welcoming many of you to Milwaukee on the 10th of May for Harley-Davidson our Inaugural LiveWire investor sessions. But now I'll hand over to Gina to run through the numbers..

Thank you, Jochen. First quarter results reflect year-over-year revenue growth but operating profit decline as we continue to operate in a volatile and inflationary supply chain environment, and we begin lapping last year's record performance within HDFS as a result of the lower loss rates and reserve allowance release.

We continue to deal with the constraints resulting from the global semiconductor shortage, higher raw material prices and broad supplier volatility, with cost inflation at levels consistent with what we experienced in the back half of 2021.

Looking more closely at our financial results in the quarter, total consolidated revenue of $1.5 billion was 5% ahead of last year. This increase was largely driven by revenue growth of 6% within HDMC.

Despite wholesale motorcycle units being flat year-over-year, revenue growth was attributed to strong global pricing and 11% growth across our parts and accessories business and 2% growth on the apparel business. Within the Financial Services segment, revenue was up 1% due to higher retail lending.

Total operating income of $289 million was down 16% compared to last year, in line with our expectations. For HDMC, operating income was $203 million, down 11% versus last year. The profit decline is attributed to cost inflation and production limitations preventing us from achieving an optimal unit mix.

At HDFS, operating income was $86 million, down 27% versus prior year, as the loss performance continues to normalize in line with expectations. First quarter GAAP earnings per share of $1.45 compares to $1.68 last year, with the decline driven by the factors already noted.

Global retail sales of new motorcycles were up 2% in the quarter, with significant growth in our international markets offsetting a decline in North America. North America Q1 retail sales were down 5% versus last year as production challenges resulted in lower dealer inventories.

We continue to build out our reservation system with the new model year launch with 92% of the U.S. dealer network participating in the program which is up from 78% in 2021. Reservations have increased 48% in 2022 compared to total 2021 reservations.

Recent new model introductions continue to show high demand in our leading reservation requests, including Low Rider ST, Pan America Special and sports dress [ph]. In markets outside of North America, Q1 retail sales were up 21% versus last year driven by growth in India, which was up 28% and Asia Pacific, which was up 16%.

EMEA and APAC retail sales were positively impacted by greater product availability and moving past the majority of the unit declines associated with the market exits and model pruning actions taken as part of the Rewire. Worldwide retail inventory of new motorcycles was down 24% versus last year, and roughly flat to the previous quarter.

Given the challenges with production, there was limited pipeline fill. On average, a bike is sitting on the showroom floor in the U.S. for less than two weeks, which is an extraordinary reduction from Q1 2019 when this was more like 10 weeks.

Overall, we continue to see strong pricing dynamics for both new and used motorcycles in Q1 as we did throughout 2021, with transaction prices staying within two points of MSRP. The used market also held steady with prices continuing to trend significantly above historical levels and within narrow gaps the new motorcycle pricing.

Looking at revenue, total HDMC Q1 revenue was up 6% versus last year. Focusing on the key drivers in the quarter, two points of growth came from volume, which is a combination of flat motorcycle units and growth in the parts and accessories and the apparel business.

Seven points of growth from pricing and incentives driven by global MSRP price increases, coupled with pricing surcharges in select markets. Two points of negative impact from unfavorable mix due to supply limitations, which predominantly impacted our North America touring business. And finally, one point of negative impact from foreign exchange.

Focusing in on margins, Q1 gross margin of 31.3% was down 280 basis points versus last year. The margin benefit from pricing was offset by the negative cost inflation across the supply chain and an unfavorable impact for motorcycle mix.

Recall that in 2021, inflation really started accelerating in Q2 and continued ramping as we moved throughout the year. The cost inflation we saw come through in Q1 is consistent with the level seen in the back half of last year. Q1 operating margin finished at 15.6% compared to 18.5% last year.

Besides the drivers already noted, we had higher operating expenses in the quarter primarily driven by LiveWire. The Financial Services segment operating income in Q1 was $86 million, down 32 million compared to last year and slightly better than internal expectations.

The decline versus last year is largely driven by the unfavorable year-over-year comparison in 2021 where we experienced both low loss rates and a significant release of the loss allowance.

Setting aside the tough comps to 2021 and looking at the HDFS base business, retail originations in Q1 were up 13% versus last year, behind strong new and used motorcycle origination volume. Ending finance receivables in Q1 were $6.8 billion, which is up 1% from last year.

HDFS' retail credit loss ratio of 1.8% is a 60 basis point increase versus 2021, as credit performance continues to revert back to historical norm and we move past the benefits provided to individuals under the federal stimulus package of last year. This increase in Q1 is in line with expectations.

In addition, the retail allowance for credit losses at the end of Q1 was 5% which was unchanged from Q4. Wrapping up with Harley-Davidson, Inc. financial results, we delivered $139 million of operating cash flow, down from $163 million in Q1 2021. The decrease in operating cash flow is driven by a change in working capital.

Total cash and cash equivalents ended at $1.4 billion, which is down 927 million compared to the end of the prior year Q1. And during the quarter, we restarted share repurchases and bought back approximately 6.2 million shares.

As we look to the rest of 2022, we reaffirm our full year outlook where we continue to expect HDMC revenue growth of 5% to 10%. This revenue growth forecast incorporates what we know today in terms of the impact with the semiconductor and supplier challenges impacting our business.

We expect revenue to continue to be positively impacted by our global pricing actions as we work to offset the cost headwinds across the supply chain. Furthermore, we expect annual growth for the parts and accessories and apparel and licensing businesses. We continue to 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 accreted businesses of P&A and apparel will more than offset the expected cost inflation across supply chain. Also, the suspension of the additional EU tariffs realized in 2021 contributes over a point in margin growth.

We continue to expect 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 that favorability is not likely to repeat itself in 2022.

And lastly, we continue to expect capital investments of $190 million to $220 million as we invest behind product development and capability enhancement in support of our Hardwire strategy. Embedded within our guidance for 2022 is LiveWire. At this time, we remain committed to the outlook issued as part of our December 13 announcement.

And finally, as we look to the 2022 capital allocation, our priorities remain to fund growth of the Hardwire initiative, which includes the capital expenditures previously mentioned, pay dividends and we plan to continue to execute discretionary share repurchases.

We have 12 million shares remaining at the end of Q1 on our Board approved share repurchase plan. This financial guidance is reflective of the supply chain outlook that we have at this time.

This updated forecast assumes that logistics and manufacturing will improve as we move through the back half of the year, as we get beyond the peak levels of inflation experienced in 2021 and the semiconductor supply stabilizes.

Given the macro global factors influencing raw materials, we now believe that raw materials and supply component inflation will continue through the balance of 2022 at inflation rates similar to Q1. As we think about phasing for the year, we believe our back half revenue growth is going to be stronger than our front half.

Additionally, due to the timing of anticipated supply chain stabilization, we expect our operating income margin to be in the mid teens in the front half and to be in the mid to high single digits in the back half. At this point, I'll turn it back to the operator to take your questions..

Thank you. [Operator Instructions]. We also ask to limit yourself to one question and return to the queue for additional questions. Thank you. Your first question comes from the line of Robbie Ohmes from Bank of America. Your line is open..

Good morning, and thanks for taking my question. It's actually two. The first one is just, Gina, could you give us some color on how this shipment has trended through the first quarter? Was there a shortfall in March on the U.S.

side? And maybe some thought on -- you've given a little color on supply chain, but I think Polaris kind of said that they might be seeing some green shoots in supply chain.

Is there any more color you can give on that? And then in terms of the guidance for the year, could you give some more color on timing of gross margin offsets, things that could make the gross margin look better in the back half related to term changes and potential for more surcharges? Thank you..

Good morning, Robbie. Thanks for the questions, plural. Let's start with shipments and how they moved throughout the quarter. I would say March was definitely worse than earlier in the quarter. And this really had everything to do with our chips supply and how that impacted our production as we move through kind of the balance of first quarter.

So we didn't see kind of that rate of production slow as we moved through. In terms of supply chain and what we're seeing here, in the first quarter very similar to what we saw in the back half of last year. Q4 looked very similar to what we're seeing here in Q1.

And as we move through the balance of the year, what we're seeing is that from a supplier and chip availability, we do see some improvements in chips in the back half of the year. But we do expect that supplier volatility will remain. So that's something of what we saw in Q1 and is going to continue as we move through the balance of the year.

Where we see some green shoots for improvement are within logistics and within our manufacturing environment. So within manufacturing, as that chip supply becomes more competent, we're able to better produce and more efficiently produce.

And so you can see that we had that slide in the deck that shows that our manufacturing kind of inflation rate in the front half of the year is a bit worse than the back half of the year. And it has everything to do with how we're able to efficiently run our operation due to that acute issue with chips.

Logistics is the other one that we are forecasting gets better in the back half of the year. And it's not as though costs are going to come down, but we're saying that costs are not going to inflate as much as we saw here in Q1. Remember, last year, we didn't have much inflation in Q1.

All of that inflation really started picking up for logistics in Q2 and kind of kept accelerating as we moved through Q3, Q4. So this quarter, again, reflects the last quarter and the four quarters go up of higher inflation.

And so in terms of how we're thinking about guidance, because of our better visibility on chip supply and the competence that gives us what we're able to produce and how we see the supply chain phasing, that's what gives us the competence to say we -- from a margin perspective, we see a step up as we move into the back half of the year.

And remember too we have pricing. Pricing that carries -- global pricing that carries us through the whole year plus other actions that we're taking across cost that help to keep our eye on an overall margin..

Thank you. Our next question comes from the line of Joe Altobello from Raymond James. Your line is now open..

Thanks. Good morning. A couple of quick questions. I guess, first, the dichotomy between retail trends in the U.S. and internationally in Q1, was that all due to the difference in base period compares? You mentioned in terms of EMEA better availability, et cetera. But it just seemed like it was a big difference this quarter.

So I'm curious what you saw from a demand standpoint internationally that maybe you didn't see in the U.S.?.

Joe, demand is equally strong throughout the region. You need to consider that especially in the first quarter of last year in the EMEA region, we had a drop that we were compensating with the first quarter of this year, but there is no demand difference. Demand is equally strong in all regions.

Also what you need to bear in mind is maybe as an additional comment is we serve as market from our [indiscernible] factoring plant and Thailand serves the EMEA region as well. So there's also differences in timing in terms of when we were manufacturing in particularly March..

Thank you. Our next question comes from the line of Craig Kennison from Baird. Your line is now open..

Hi. Good morning. Thanks for taking my question. It's on the economy. Obviously, there's a lot of focus on your supply chain challenges, and rightly so. But we do get a lot more questions on the economy and demand trends as the Fed looks to fight inflation and the potential for a recession as they try to get ahead of it.

I guess in your mind, what can you do to prepare for a recession? And how likely is that as you see your current demand trends today?.

Thanks, Craig. Demand trends and signals are strong, as Gina mentioned. We have now 92% of our dealer network that are leveraging our reservation system. Reservations are up 48% versus last year. So quantitatively and qualitatively, the feedback data we are getting from our dealers confirm that demand for our product is very strong.

I also mentioned the inventory levels versus end weeks [ph] inventory levels down 24%. And that is a result of the strong demand that continues. Market share in our most profitable categories is actually growing, more riders than ever through our Riding Academy.

And if you look at our spread between used and new bike prices, it's as small as it's ever been. And as also Gina mentioned, transaction prices are at or above MSRP.

So everything we see continues to suggest that you can't anticipate a recession, right? But what would help if market at some point goes into recession is that we have extremely low inventory levels and that will allow us into the pipeline if they [indiscernible] affecting our wholesales negatively.

I think also from an HDFS, they're really starting from a very healthy position. If you look at the cost of funds, they're half the rate of where they were back in 2009. Rates are more competitive and we [indiscernible] overall, I think coming from -- we are obviously preparing ourselves, but we see no indication of this for our products.

Demand is strong and that's what we're planning for..

Thank you. Our next question comes from the line of Brett Andress from KeyBanc. Your line is now open. Brett Andress from KeyBanc, please check your mute button. Your line is now open. Our next question comes from the line of David MacGregor from Longbow Research. Your line is now open..

Good morning. This is Joe Nolan on for David MacGregor. I was just wondering if you could talk about within the 5% to 10% motorcycle revenue growth guidance for the year, could you just talk about how you're thinking about volume versus price within that guidance..

Sure. Good morning, Joe. This is Gina. So in that 5% to 10%, how we've talked about it at the low end of the range of that 5%, it's basically all price. At the high end of the range at 10%, that is both a combination of volume and price..

Thank you. Our next question comes from the line of Jamie Katz from Morningstar. Your line is now open..

Hi. Good morning. Thank you for taking my questions. First, I'm curious if you would be willing to discuss what your composition of dealer inventory looks like right now and maybe where your optimal time on the show floor would be? It's obviously somewhere between two weeks and 10 weeks, but I'm guessing we maybe aren't at that level yet.

And then as you think about mix of units for the rest of the year, if you have any insight as to how you expect that to play out that would be really helpful from a gross margin perspective? Thank you..

Good morning, Jamie. Thank you for your questions. Let me tackle the first part of it first around where we think the optimal inventory level. As you referenced, I think we have certainly seen that we are a little bit lighter than we would like to be today in the dealer network.

That is certainly something we hear, as Jochen mentioned, both qualitatively from our dealers and we can also see it in just the speed of how those units are turning.

Now we think that there are a lot of things that we are doing in the short term to help support that leaner inventory position, both domestically and internationally, with our reservations and preorder systems that's paramount among those measures. They will certainly like to see the inventory growing to be a little bit more robust over time.

That said, to your reference to sort of the high end of that range of 10 weeks, we certainly do not envision the need to go back to that level of inventory.

I think both ourselves and our dealers have learned how to operate much more efficiently and to find different ways to meet our customer demand for specific models, particularly those new models in a way that does not require us to have excessive inventory on the dealer floor. So it is something that we are learning. We continue to evolve the model.

We continue to gain further understanding of consumer behavior as we go through the past couple of years. And we certainly will factor that in to how we think about the inventory levels going forward.

To the second part of your question around units, again, as Gina referenced, in Q1, we certainly were planning for a higher level of demanders [ph] from shipments -- around shipments, specifically around our touring product in North America.

As you all can reference, there's a certain amount of this mix that is influenced by our manufacturing footprint that was differentially impacted throughout the quarter. We expect to see some recovery in that towards the back half of the year.

And we certainly would say and we hear this again, quantitatively you can see it in the data and qualitatively from our dealers that there is strong demand in North America for some of those core products that represent some of our most profitable families and product lines that we intend to meet throughout the year.

So I would say that there's certainly opportunity for mix and how those core segments will represent throughout the rest of the year..

Thank you. Our next question comes from the line of Brett Andress from KeyBanc. Your line is now open..

Hi. Good morning. Sorry about that earlier. Gina, you helped us with the phasing of the motor co.

Is there any way you can help us with HDFS phasing for the rest of the year? And maybe how some of these CECL provisions might play into that?.

Yes, good question. I would say it's going to be relatively constant with what you saw play through here in Q1. There's not any big spike up or down. When you think about the reserve release and what happened last year, it was a pretty kind of steady decline as we moved quarter-by-quarter.

When you look at where our reserve rate is in Q1, relatively unchanged from what we saw in Q4. So we're not at this point expecting any big swings up or down in that reserve rate as we move through the balance of the year. And that was what was really creating, I would say, the lumpiness in last year's results..

Thank you. Our next question comes from the line of Gerrick Johnson from BMO Capital Markets. Your line is now open..

Great, thank you. Good morning. I was hoping we could talk a little bit more about pricing, particularly surcharges.

I think in international, maybe you did not have some surcharges last year, and if you're implementing those international markets this year? And then also the contribution from the reduction in dealer margin and how you came to that decision to go forward with a lower margin for dealers? Thank you..

Good morning. Thank you for your questions. So as your reference, we have taken several pricing actions starting last year and into the first part of this year on an ongoing basis across all regions and all family lines, so both motorcycles as well as parts and accessories and apparel and licensing.

Those actions have largely offset the cost inflation that we are seeing this year. However, we continue to monitor that very closely to ensure that we are preserving our margin as much as possible through pricing actions.

We also, of course, are monitoring price realization and understanding of where some of those metrics may be landing both domestically and internationally. As you say, we have used a mixture of MSRP as well as surcharges. We believe that this provides us flexibility. You will see that play out differently in different markets.

But certainly the combination of those two factors is something that we think provides, again, that flexibility to monitor the situation as we go throughout the year.

To your second question around the dealer margin, I wouldn't like to comment on the specifics of sort of the economic terms between ourselves and our key partners that are dealers in North America.

I will say that for us a strong and healthy dealer network is an incredibly important part of the Hardwire strategy and what we intend to do over the next few years.

Dealer profitability is at near record levels, which to us is great to see and we intend to continue to partner with their dealers to continue to evolve the model of how we work together to best serve our customers over the course of Hardwire and beyond..

Thank you. Our next question comes from the line of Ryan Sundby from William Blair. Your line is now open..

Hi. Good morning. Thanks for the question. Gina, thanks for the color there on what the production schedule look like as we moved through the quarter.

Could you flip that around maybe and talk about what the demand trends have looked like during the quarter, because particularly as we've seen gas prices move higher here in the last couple of months?.

Sorry, Ryan. What was the last part of your question? You kind of faded out here..

Yes, sorry..

On demand trends..

Just with gas prices moving up here for the consumer, has that started to impact demand at all?.

In short, no. We have not seen any of that kind of current acute issues on inflation that are hitting consumers, impacting our demand. No, we're not seeing that. So yes, the biggest thing that impacted our shipments in Q1 was our ability to produce to the demand.

So it wasn't a slowdown in any sense of the imagination, and Edel can provide some more color commentary from a dealer lens. But it was all -- everything that you see in Q1 was our ability to produce..

Gina, maybe let me add to that and reiterate some of the points you also made earlier.

Every dimension that we look at in terms of the data, preorders, price realization, the growth in demand and some of those key categories, Touring, Trike, Large Cruiser as well as the relative speed of the inventory, turning out sort of unprecedented rates at more or less two weeks, and that includes those shipments, all of those we find to be positive.

Some of the other metrics that we look at to monitor demand, the used price gap versus new as well as even how many students are coming through Riding Academy are also very positive. And then to the third factor that Gina referenced, the qualitative feedback that we get from our dealers, I think the consistent message both in the U.S.

and Canada and in other international markets is really around, if we had more bikes, you could sell them. So I think that all of those factors contribute to giving us confidence in what we are seeing in terms of demand..

Thank you. Our next question comes from the line of Fred Wightman from Wolfe Research. Your line is now open..

Hi, guys. Good morning. Thanks for the question. I just wanted to follow up on the comment about just that gap between new and used pricing. It's not something that you guys have been working on for a really long time.

But as we think about whether it's later this year or into next year, how do you see that gap trending? Should we expect it to expand a little bit? Could there be a little bit more seasonality?.

I would not expect -- Fred, this is Gina. I would not expect that gap to widen too dramatically as we move through, I would say the next kind of balance of this year and next fiscal, just given what is happening on the supply side.

We've had in '20, in '21 and in 2022 just from what we've been able to produce in new is going to create good economics in the used market..

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Shawn Collins for closing remarks..

Great. Well, thanks everyone for joining today's call and we hope you have a great day and obviously check in with us with any questions. Thanks..

This concludes today's conference call. Thank you for participating. You may now disconnect..