LiveWire Group, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparisons are to the periods ended June 26, 2022. LiveWire designs and sells electric motorcycles and related products, and STACYC electric balance bikes. It operates through Electric Motorcycles and STACYC segments. The company became a standalone public company in September 2022, so prior-period results reflect its former carve-out relationship with Harley-Davidson (H-D).
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $7.0m | $12.5m | $14.8m | $22.9m |
| Gross profit (loss) | ($2.9m) | ($0.4m) | ($1.7m) | ($0.3m) |
| Operating loss | ($32.0m) | ($19.4m) | ($56.9m) | ($35.1m) |
| Net loss | ($40.7m) | ($19.6m) | ($61.9m) | ($35.6m) |
| Basic and diluted loss per share | ($0.20) | ($0.12) | ($0.31) | ($0.22) |
- Margins: Q2 gross margin was approximately negative 41.8%, versus negative 3.1% a year earlier. Six-month gross margin was approximately negative 11.3%, versus negative 1.7%. The company reported no gross profit in either period.
- Cash flow: For the first six months, operating cash use was $41.2m and capital expenditures were $8.2m; financing cash flow was $2,000. Cash decreased $49.4m to $215.9m.
- Balance sheet: Current assets were $255.9m and current liabilities $40.8m. Cash and cash equivalents were $215.9m, including $213.0m in money market funds. Total liabilities were $61.3m; these included $2.6m of lease liabilities and $18.8m of warrant liabilities. The filing reports no conventional borrowings outstanding at June 30.
- Inventory was $32.2m, up from $29.2m at year-end 2022. Accounts payable to related parties, principally H-D, rose to $16.3m from $5.7m.
- Interest income was $2.8m in Q2 and $5.4m for the six months, mainly from money market investments. Warrant fair-value remeasurement generated expenses of $11.4m and $10.4m, respectively. These warrant-related charges contributed to net loss but did not represent operating expenses.
Changes and operating performance
- Q2 revenue fell 43.8%; six-month revenue fell 35.4%. Electric Motorcycles revenue declined 85.2% in Q2 and 69.9% for the six months, with lower LiveWire ONE sales and prior-year H-D-branded motorcycle sales contributing to the comparison.
- STACYC revenue declined 14.9% in Q2 and 18.8% for the six months, mainly due to lower electric balance bike shipment volumes. The segment moved from operating income of $0.8m in Q2 2022 and $1.8m in the first half of 2022 to losses of $0.1m and $0.2m, respectively.
- Operating losses widened as selling, administrative and engineering costs increased, reflecting product development, work to advance electric vehicle systems and the S2 platform, and higher staffing to establish the standalone organization. STACYC also increased advertising spending.
- Electric motorcycle unit sales were particularly weak: Q2 wholesale sales were 9 versus 170; company retail sales were 24 versus 55. Total LiveWire motorcycle sales were 33 versus 225. STACYC bike sales were 8,206 versus 9,478. The independent-retailer data is supplied by partners, is not regularly verified by the company, and may be revised.
Outlook, risks and unusual items
- Management expects operating cash flow to remain negative over the next 12 months, but believes cash on hand will cover projected obligations for at least that period. It expects higher capital expenditures and working-capital needs as the business grows. Estimated 2023 capital expenditures are $15m–$20m.
- Management’s 2023 priorities include product development, global expansion, the LiveWire ONE’s European market introduction and planned S2 Del Mar production in Q3. The filing provides no numerical revenue, earnings or unit-sales guidance.
- The company recorded a $3.7m liability for excess inventory components held by H-D, included in cost of goods sold and amounts payable to H-D. It also entered a vendor commitment for inventory components with estimated payments totaling approximately $6.6m through 2026. Potential payments under minimum purchase commitments with H-D may begin in 2024.
- Key risks include continuing losses, market acceptance and execution of electric vehicle launches, competition, reliance on H-D and contract manufacturers, supplier concentration (including battery cells and semiconductor chips), supply-chain disruption, inflation and foreign-exchange exposure as international sales grow. Management does not expect to rely on potential warrant-exercise proceeds to fund operations.
- The filing reports no material product liability claims, no recall liability at June 30, and no material changes to the principal risk factors disclosed in the 2022 Form 10-K. Management says the material weakness involving premature recognition of STACYC revenue in 2022 was remediated as of June 30, 2023; disclosure controls were assessed as effective.
Investor verification priorities
- Track LiveWire motorcycle shipments, customer demand, and the timing and execution of S2 Del Mar production; assess whether retail-partner sales data changes.
- Monitor cash burn, capital expenditures, inventory growth and management’s stated liquidity runway, including whether the $15m–$20m 2023 capex estimate changes.
- Review H-D-related balances, the $3.7m excess-inventory obligation, contract-manufacturing terms and potential minimum-purchase payments beginning in 2024.
- Assess whether STACYC volumes and segment profitability recover, and whether LiveWire’s product-development and standalone operating costs produce measurable revenue growth.
- Follow warrant-liability volatility and potential dilution; warrant exercises depend on the share price and may provide no cash proceeds.
- Confirm that the remediated revenue-recognition controls continue to operate effectively and that no further material weaknesses emerge.