HARLEY-DAVIDSON Earningcall Transcript Of Q2 of 2024


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morning's call are, Harley-Davidson chief executive officer, Jochen Zeitz; also chief financial officer,

Jonathan Root; and we have LiveWire's chief executive officer, Karim Donnez. With that, let me turn

it over to our CEO, Jochen Zeitz.

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Jochen? 

Jochen Zeitz -- Chairman, President, and Chief Executive Officer

Thank you, Shawn and good morning, everyone. Thank you for joining us for our Q2 2024 results. In

Q2,  consolidated  revenue  was  up  12%  driven  by  revenue  growth  of  13%  at  HDMC  and  10%  at

HDFS. Additionally, we saw a strong improvement in earnings per share to $1.63 for the quarter.

Consolidated operating income in the second quarter was $241 million, up 9% from the prior year,

driven largely by an increase of 21% of HDFS. In addition, HDMC operating income was up 2% and

the operating loss of LiveWire was $4 million less than a year ago. Through the quarter we saw the

continued  impact  of  the  high  interest  rate  environment  affecting  our  industry,  and  in  particular  big

ticket consumer discretionary sectors. That said, retail sales of new motorcycles in the U.S were still

slightly positive versus prior year, with a varying degree of performance from state to state.

Turning to our global performance, it's important to note that we see mixed picture also across our

international markets. In EMEA, retail sales declined by 1%, with certain markets in Central Europe

underperforming while others overperformed. And in Asia Pacific, Q2 retail sales declined by 16%

driven  by  weakness  primarily  in  China.  North  America,  including  Canada  was  down  1%  and  Latin

America was flat.

Looking  ahead,  we're  narrowing  our  retail  and  wholesale  expectations  to  reflect  the  current

environment.  We  continue  to  expect  that  retail  units  sold  and  wholesale  unit  shipments  will  be

balanced by the end of '24. Dealer inventory should be at similar levels as at the end of last year.

This implies a reduction in dealer inventory of approximately 30% versus current levels.

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This should allow our network to take advantage of opportunities in the market. Being mindful and

supporting  dealer  health  following  the  record  levels  of  profitability  in  '21  and  '22,  we  expect  these

shipment  reductions  to  positively  impact  dealer's  floor  plan  expenses.  Our  performance  in  the  first

half of the year continue to be aligned to our Hardwire strategic pillar, Profit Focus, with strong mix

and notable growth in touring, especially CVO models, despite the challenging market environment

in  the  overall  industry.  Building  on  our  commitment  to  invest  in  our  core  categories,  we've  been

extremely  pleased  with  the  strong  response  to  our  new  era  of  touring  motorcycles  with  our  '24  in

Road Glide and CVO offerings.

The  product  continues  to  receive  a  strong  reception  in  the  market  from  the  industry,  customers,

dealers  and  media  alike  as  it  grows  awareness  globally.  Additionally,  in  the  U.S.,  we  saw  strong

gains in the -- in share in the 601+CC market at the backdrop of an overall declining industry in Q2

and year-to-date, while Harley-Davidson touring being up 5.3 percentage points in share and over

11%  in  unit  growth.  As  we  look  at  our  customer,  our  insights  tell  us  that  performance  is  an

increasingly  important  part  of  being  a  Harley-Davidson  rider,  with  44%  of  riders  considering

performance  to  be  the  most  important  feature  when  purchasing,  73%  of  owners  thinking  it's

important to own a performance-related motorcycle, and over 80% of owners seeing an increase in

attention  paid  to  performance.  Through  our  involvement  in  the  King  of  the  Baggers  racing  series

with  Harley-Davidson  riders  holding  the  first  and  third  place  on  the  leadership  for  this  season,  we

continue  to  celebrate  and  emphasize  performance  as  a  key  differentiator  for  the  Harley-Davidson

line up.

This performance has continued to be popular with riders, as seen by the strong performance of our

ST  offering.  In  addition,  we  selectively  focus  on  opportunities  in  segments  that  we  believe  have  a

path  to  in-market  success  and  profitability,  capitalizing  on  our  brand  strength  and  product

capabilities, and selectively complement with partnerships. Looking at our partnership with Hero, we

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continue  to  be  pleased  with  the  reception  that  the  X440  has  received  since  launch,  and  we  look

forward to exploring further opportunities. LiveWire is pioneering the industry for EV motorcycles.

However, we are realistic about the overall environment, especially in the U.S. As we detailed at the

last  quarter,  we  plan  to  continue  to  improving  our  investments  and  driving  cost  productivity  at

LiveWire, as you'll hear from Karim. That said, we're also further committing to support LiveWire in

lowering  the  breakeven  point.  We  expect  further  cost  reductions  to  adjust  to  the  overall  market

environment and to reduce the cash burn of the business in the future.

I also wanted to highlight the recent Department of Energy grant of $89 million that Harley-Davidson

was awarded to invest in our facility in York, Pennsylvania, to support its overall operations, as well

as the manufacture of EV motorcycles for LiveWire. This grant is specifically targeted to strengthen

and  help  expand  Harley-Davidson  manufacturing  facility  in  York  to  incorporate  new  paint  and

assembly equipment, supporting the manufacturing of all of its motorcycles and training of our union

workforce, all while providing meaningful community and workforce enhancements. We look forward

to  working  with  the  Department  of  Energy  to  realize  this  investment  into  the  York  facility.

Harley-Davidson  Financial  Services,  or  HDFS,  delivered  a  strong  quarter  with  a  meaningful  $23

million or 10% revenue increase in Q2.

This  was  primarily  driven  by  higher  retail  and  commercial  finance  receivables,  as  well  as  higher

average  yields  as  the  portfolio  continued  to  reset  over  time.  Thanks  to  growing  penetration  today,

roughly  70%  of  new  and  used  Harley-Davidson  motorcycles  are  being  financed  through  HDFS  in

North  America.  But  crucially,  HDFS  allows  us  to  understand  our  customers  better  through  the

unique insights and customer dynamics that we've access to. One of those insights that I'd like to

call out today is our average age customer profile.

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As we look back through our HDFS data over the past, we are able to see that the average age of

our customers purchasing a motorcycle, used and new, is about 45. This is a fact-based metric that

stands in contrast to the narrative that has been perpetuated by some commentators. As you can

see  in  the  slide  that  we  provided  as  part  of  this  presentation,  the  average  age  has  not  moved

significantly  in  the  last  10  years  and  even  much  beyond.  In  addition,  nearly  30%  of  HDFS  loan

originations in the past five years were made to customers 35 and younger, with 75% 54 or under.

Given the average MSRP and the segments we compete in, we continue to expect our customer to

age  into  our  product  while  building  brand  awareness  and  desirability,  starting  at  a  much  younger

age,  helped  by  all  our  efforts  to  build  new  and  keep  existing  riders  riding  as  part  of  our  Hardwire

strategy. With that said, the Hardwire puts customers at the forefront of Harley-Davidson's products

and experiences and defines customers as people who may dream of motorcycling or just learned to

ride  a  Harley-Davidson  motorcycle,  all  the  way  to  riders  who  are  deeply  passionate  about  and

invested  in  the  Harley-Davidson  lifestyle  and  community.  Within  Harley-Davidson  experiences,  we

could  recognize  the  important  role  that  events  play  in  bringing  our  community  together.  This  is

especially true with our Harley owners group.

Earlier  this  year  in  Senigallia,  Italy,  we  hosted  the  30th  European  H.O.G.  Rally.  This  exceeded  all

our expectations with an estimated 100,000 fans and Harley owners group members attending, and

over 20,000 motorcycles visiting from Europe and beyond. In addition to the many events happening

in  riding  season  around  the  world,  we  also  had  a  significant  presence  at  Laconia  and  Born  Free,

celebrating our customers that are typically younger than our average age.

Today sees us kick off our second annual homecoming festival right here in our hometown. We're

excited to welcome our community to Milwaukee. Events will be held across our footprint here in the

city  at  our  Museum,  Product  Development  Center,  and  Juneau  Avenue  headquarters,  including

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Davidson Park that the Harley-Davidson Foundation formally unveiled just recently. With headliners

including  Jelly  Roll  and  the  Red  Hot  Chili  Peppers  performing  at  Veterans  Park,  it's  going  to  be  a

weekend to remember.

Now, before I turn it over to Karim, I'd like to comment briefly on our performance since initiation of

the Hardwire and subsequent Hardwire II. Despite the challenging environment, we are pleased with

the progress we've continued to make in executing our strategy as we progress toward generating

value  for  our  shareholders  over  the  long-term.  We  continue  to  believe  there's  meaningful  growth

potential for the company, and we remain focused on realizing that opportunity. We will continue to

pursue delivery of our strategic pillars through peer focus, with plans to drive significant productivity

across  the  business  in  addition  to  evaluating  and  pursuing  selective  opportunities  and  continuous

product innovation to drive growth and ridership.

And  through  this  process,  we  will  continue  to  evaluate  our  decisions  when  compared  to  the  rider

focus  on  returning  surplus  capital  to  our  shareholders.  With  that  in  mind  and  consistent  with  our

capital  allocation  decisions  today,  today  we  are  announcing  our  plan  to  repurchase  $1  billion  in

shares. Details were announced in our press release that went out earlier today. The dividend policy

remains unchanged and the company continues to expect the dividend for the remaining quarters of

'24 to be in line with Q2 and Q1.

And with that, I'll hand it over to Karim.

Karim Donnez -- Chief Executive Officer, LiveWire

Thank  you,  Jochen.  Good  morning,  everyone.  We're  happy  to  report  that  LiveWire  continued  to

attract new riders with a triple-digit increase in LiveWire branded unit sales compared to the second

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quarter of 2023. Retail sales outpaced wholesale again in the second quarter, making LiveWire the

No.

1  on-road  electric  motorcycle  retailer  in  the  U.S  for  the  first  half  of  2024.  Our  market  presence

continued to grow steadily, especially in Europe, with two models, LiveWire One and Del Mar, now

in  market.  In  late  June,  we  also  launched  STACYC  Electric  Balance  Bike  in  the  EMEA  market  to

broaden our product offerings and reach new customer segments. Additionally, LiveWire's operating

loss  improved  by  12%  compared  to  the  second  quarter  of  2023,  underscoring  the  company's

approach in reducing costs while expanding its product line and market presence.

Our cost-cutting measures are not just about reducing expenses, they're about driving efficiency and

ensuring that we allocate our resources to the areas that matter the most as we continue to work on

offering  the  best  value  proposition  to  all  our  stakeholders,  considering  the  current  market

environment.  In  the  second  half  of  2024,  LiveWire  remains  committed  to  continuous  improvement

and innovation from our product development to our manufacturing processes. We are focused on

finding  smart  and  effective  ways  to  operate  while  reinforcing  growth,  profitability,  and  category

leadership  as  priorities.  And  as  mentioned  by  Jochen,  we  are  also  planning  for  a  significant

reduction in cash flow next year with stronger business fundamentals in place and expenses aligned

with market reality, while continuing to drive awareness and demand.

Thank you. And now I'll hand it over to Jonathan.

Jonathan Root -- Chief Financial Officer

Thank you, Karim, and good morning to all. I plan to start on Page 5 of the presentation where I will

briefly  summarize  the  consolidated  financial  results  for  the  second  quarter  of  2024,  and

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subsequently I will go into further detail on each business segment. As Jochen already commented,

consolidated revenue in the second quarter was up 12%, driven by HDMC revenue growth of 13%

and HDFS revenue growth of 10%. Consolidated operating income in the second quarter was $241

million, up 9% from the prior year period, driven largely by an increase of 21% at HDFS.

In  addition,  HDMC  operating  income  was  up  2%,  and  the  operating  loss  at  the  LiveWire  segment

was an improvement of $4 million compared to a year ago. The consolidated margin in the second

quarter  was  14.9%,  which  compares  to  15.3%  in  the  prior  year  period,  where  HDMC  operating

income  margin  was  down  155  basis  points  year  over  year,  and  HDFS  operating  margin  was

improved by 254 basis points. I plan to go into further detail on each business segment's profit and

loss  drivers  in  the  next  section.  Second  quarter  earnings  per  share  was  $1.63,  up  34%,  and

compares to $1.22 last year.

As  we  flip  the  page  to  first  half  results,  total  consolidated  HDI  revenue  of  $3.3  billion  was  up  4%

compared to last year. The components of this were at HDMC, revenue increased by 3%, at HDFS,

revenue  increased  by  11%  and  at  LiveWire,  revenue  declined  by  25%.  Total  consolidated  HDI

operating  income  was  $504  million,  which  was  $87  million  lower  than  the  prior  year.  The

components  of  this  were,  at  HDMC,  operating  income  of  $436  million  was  18%  lower  than  prior

year, reflecting an operating margin of 15.4% in the first half of the year.

At  HDFS,  operating  income  of  $125  million  increased  by  7%  in  the  first  half  of  the  year.  And  at

LiveWire, an operating loss of $57 million was in line with our expectations. Year-to-date earnings

per share was $3.34, up 2% and compares to $3.27 last year. Let me turn to Slide 7, and I will aim

to be brief here as Jochen earlier provided commentary on both Q2 retail performance by region and

recent market share highlights.

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Dealer inventory at the end of Q2 is up from the levels at the end of Q2, 2023, and just slightly down

versus  levels  at  the  end  of  Q1,  2024.  We  believe  current  dealer  inventory  and  product  availability

are in largely healthy positions overall as we are in the midst of the important summer riding season

in North America and Europe. We continue to prioritize availability and inventory of Touring, Trike,

Softail,  and  CVO  motorcycles  and  ensure  our  dealers  have  an  appropriate  supply.  We  will  talk

further about our expectations for both retail and wholesale motorcycles in just a few minutes.

Looking  at  revenue,  HDMC  revenue  increased  by  13%  in  Q2,  focusing  on  the  key  drivers  for  the

quarter.  11  points  of  growth  came  from  increased  wholesale  volume  at  HDMC,  where  motorcycle

shipments  in  the  quarter  were  ahead  of  last  year  by  16%.  Whereas  Q2  2023  shipments  were

adversely impacted by an unplanned production suspension at our U.S. manufacturing operations.

Four  points  of  decline  came  from  pricing,  which  includes  the  impacts  of  the  pricing  surcharge

elimination, other pricing actions on 2024 model year and sales incentives for only our model year

2023  motorcycles.  Mix  contributed  seven  points  of  growth  as  we  continued  to  prioritize  our  most

profitable  models  and  markets.  And  finally,  one  point  of  negative  impact  came  from  foreign

exchange. In Q2, HDMC, gross margin was 32.1%, which compares to 34.8% in the prior year.

The decrease of approximately 270 basis points was driven by lower overall pricing, inclusive of the

impact  of  surcharge  removal,  higher  manufacturing  and  other  costs  and  adverse  impacts  from

foreign exchange. This was partially offset by positive impacts from volume, improved mix and lower

raw  material  prices.  Let  me  provide  some  color  on  a  few  of  the  specific  drivers.  Pricing  had  the

biggest adverse impact to margin where we priced the all new touring motorcycle strategically, and

we  have  additional  incentive  or  promotional  spend  in  Q2  centered  on  interest  rate  assistance  to

consumers on model year 2023 motorcycles only.

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Improved  mix  had  the  biggest  positive  impact  on  our  margin  where  we  prioritize  the  shipment  of

touring  and  CVO  motorcycles.  Lastly,  foreign  exchange  exposure  was  unfavorable  in  Q2  with  the

largest impact seen in the Japanese yen and euro. In addition, we experienced around 2% of cost

inflation on an annualized basis in Q2. On the operating expense side, expenses were $12 million

higher relative to prior year due to higher spend on regional marketing and warranty costs.

In addition, we had some employee exit charges associated with recent select headcount reductions

primarily  at  the  operating  expense  level.  These  moves  were  made  in  an  effort  to  increase  future

opex productivity. HDMC operating margin came in at 14.7% in Q2 from 16.2% in the prior year. For

the  first  half  of  the  year,  HDMC,  gross  margin  was  31.7%,  which  compares  to  35.4%  in  the  prior

year's period.

Operating  income  was  $436  million,  which  was  $94  million  or  18%  lower  than  prior  year.  HDMC

operating margin of 15.4% through the first half was 3.8 points lower than prior year. The decrease

was due to less favorable pricing, manufacturing, and foreign exchange. These effects were partially

offset by improved mix and a modest increase in volume.

In addition, year-to-date, lower margin reflects the deleverage we experienced in Q1 as a result of

Q1  2024  wholesale  product,  which  was  produced  in  Q4  of  2023,  where  fixed  costs  per  unit  were

higher due to lower production. Lastly, in the first half, operating expenses were $13 million or 3%

higher in line with previous discussion. Before we turn to the next slide, let me give a brief update on

our productivity cost program. One of the initiatives identified as part of the hardwire strategy where

we are driving improvement in productivity to eliminate the $400 million of incremental supply chain

costs incurred in 2020.

To simplify and provide more transparency, we are now excluding leverage from productivity while

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still holding our previously communicated multiyear target of $400 million, which originally included a

benefit  from  leverage  of  between  $50  million  and  $70  million.  Maintaining  the  $400  million  target

without  the  positive  impact  of  leverage  is  a  testament  to  the  confidence  we  have  in  our  cost

reduction programs. Excluding leverage, we delivered approximately $24 million in 2022 and $123

million in 2023. In 2024, we've delivered $50 million through Q2.

Turning  to  Slide  11  now,  and  the  Financial  Services  segment.  At  Harley-Davidson  Financial

Services,  Q2  revenue  increased  by  $23  million  or  10%  driven  by  higher  retail  and  commercial

finance receivables, as well as higher average yields. As the portfolio continues to reset over time to

the  higher  base  rates  caused  by  fed  rate  expansion,  which  were  driving  higher  interest  income.

HDFS operating income was $71 million up $12 million or up 21% compared to last year.

The  Q2  increase  was  driven  by  higher  interest  income  and  the  lower  provision  for  credit  losses,

which  were  partially  offset  by  increased  borrowing  costs  and  higher  operating  expenses.  Total

interest  expense  was  up  $8  million  or  up  9%  versus  the  prior  year.  The  increase  was  driven  by  a

higher cost of funds as lower interest rate debt matured and was replaced with current market rate

debt. In Q2, HDFS's annualized retail credit loss ratio was 3.1%, which compares to an annualized

retail credit loss ratio of 2.6% in Q2 2023.

The  increase  in  credit  losses  was  driven  by  several  factors  relating  to  the  current  macroeconomic

environment  and  the  related  customer  and  industry  dynamics.  In  addition,  the  retail  allowance  for

credit  losses  for  the  second  quarter  came  in  at  5.4%,  up  from  5.3%  a  year  ago,  and  at  the  same

level  as  the  5.4%  at  the  end  of  Q1  2024.  This  reflects  our  best  estimate  of  the  current  and  future

retail lending environment. Total retail loan originations in Q2 were down 4%.

While  commercial  financing  activities  were  up  52%  to  $1.4  billion.  Total  quarter  end  net  financing

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receivables, including both retail loans and commercial financing, was $8 billion, which was up 7%

versus prior year. Turning to Slide 12 and the first half results at HDFS. First half revenue increased

by $49 million or 11%.

HDFS operating income was $125 million, up $8 million or up 7% compared to last year. The first

half increase was driven by higher interest income, which more than offset higher borrowing costs,

higher  provision  for  credit  losses  and  higher  operating  expenses.  For  the  LiveWire  segment,  as

Karim mentioned, electric motorcycles revenue increased in the second quarter of 2024 compared

to the prior year period due to higher unit sales of EV motorcycles in the quarter At STACYC, the

Electric Balance Bike business revenue was down compared to the prior year, which was expected

due to a reduction in third-party branded distributor volumes. Selling, engineering and administrative

expenses were down $3 million or down 9% in Q2 compared to the prior year.

LiveWire  operating  loss  of  $28  million,  $4  million  less  than  a  year  ago  was  in  line  with  our

expectations as LiveWire continued to invest in new motorcycle models and also actions initiatives

to  reduce  the  overall  cost  of  sales  for  EV  motorcycles.  For  the  first  half  results  at  the  LiveWire

segment,  revenue  was  $11  million,  down  25%  from  the  prior  year  as  a  result  of  lower  revenue  at

STACYC,  the  Electric  Balance  Bicycle  business.  For  the  first  half  of  the  year,  LiveWire  sold  275

electric  motorcycles,  which  is  a  triple-digit  increase  over  the  prior  year  period.  For  the  period,

LiveWire operating loss was $57 million, which was in line with our expectations.

Wrapping up with consolidated Harley-Davidson, Inc. Financial results, we delivered $578 million of

operating cash flow in the first half of 2024, which was up from $411 million in the same period last

year. The increase in operating cash flow was due primarily to positive changes in working capital

during  the  first  half  of  2024  compared  to  the  first  half  of  2023,  driven  by  a  decrease  in  inventory

during  2024.  These  positive  impacts  were  partially  offset  by  higher  net  cash  outflows  related  to

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wholesale finance receivables.

Total cash and cash equivalents ended at $1.8 billion, which was $327 million higher than at the end

of Q2 prior year. This consolidated cash number includes $113 million at LiveWire. Additionally, as

part  of  our  capital  allocation  strategy  and  in  line  with  our  commitment  to  return  capital  to  our

shareholders in Q2, we bought back 2.9 million shares of our stock at a cost of $102 million. This

brings  our  total  amount  of  shares  bought  back  in  the  first  half  of  2024  to  5.5  million  shares  of

Harley-Davidson common stock at a total value of $200 million.

This compares to 4.1 million shares at a total value of $156 million in the first half of 2023. We see

2024 not only as a year to balance retail sales and wholesale ships, but also as a year to improve

balance sheet efficiency. As it has become clearer, that volume will be toward the lower end of our

original expectations, planned production cuts in the back half of the year, will be more aggressive

than the reductions we envisioned for retail sales and wholesale shipments. This produces a gross

margin  headwind  in  Q3  and  Q4  that  it's  greater  than  we  originally  estimated,  but  we  believe

positions  the  company  more  appropriately  for  2025,  frees  up  additional  cash  and  reduces

obsolescent risk on an ongoing basis.

We  continue  to  expect  that  retail  units  sold  and  wholesale  unit  shipments  will  be  balanced  by  the

end of 2024, and we now expect retail and wholesale to be in the range of 163,000 to 168,000 units.

Retail to be in the range of flat to up 3% for the full year. Wholesale shipments to be in the range of

down 7% to down 10% for the full year. As we look to guidance for the year, there are a number of

elements that remain unchanged from the prior quarter, but there are some changes for HDMC and

that is where I will begin.

We now expect revenue to be down in the range of 5% to 9%, and this has been narrowed from our

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previous flat to down 9%. Operating income margin is now projected to come in between 10.6% and

11.6%  rather  than  the  12.6%  to  13.6%  range  that  we  had  previously  guided  to.  The  downward

revision  is  primarily  due  to  production  and  wholesale  reductions,  and  the  impact  of  leverage.  At

HDFS, guidance for the full year 2024 remains unchanged, where we expect operating income to be

flat to up 5%.

At LiveWire, guidance for full year 2024 remains unchanged, where we continue to expect to deliver

between 1,000 and 1,500 electric motorcycle units and an operating loss in the range of $105 million

to $115 million. And we continue to expect capital investment in the range of $225 million to $250

million. As we look at capital allocation in 2024, our priorities remain to fund profitable growth with

the  Hardwire  initiatives,  which  includes  the  capital  expenditures  mentioned  previously  paying

dividends  and  continuing  to  execute  discretionary  share  repurchases.  As  Jochen  touched  on,  and

as can be seen from our press release earlier today, we are announcing a new plan to repurchase

$1 billion in shares through 2026.

We  feel  this  highlights  our  operating  discipline,  overall  cash  flow  generation  and  the  long-term

earnings power, and is supported by our continued commitment to deliver a 15% operating income

margin by the end of 2025. And with that, we'll open it up to Q&A.

Questions & Answers:



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