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2022-09-25

FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

Commission file number 001-41511

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, $0.0001 par value per share			LVWR			New York Stock Exchange
Warrants to purchase common stock			LVWR WS			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐    No  ☒

Number of shares of the registrant’s common stock outstanding at November 3, 2023: 202,543,748 shares

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to statements regarding future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth, plans and objectives relating to the Company’s climate commitment, the Company’s ability to remediate the material weakness in internal control over financial reporting, and the Company’s objectives for future operations.

The forward-looking statements in this Quarterly Report are only predictions. The Company has based these forward-looking statements largely on current expectations and projections about future events and financial trends that the Company believes may affect the Company’s business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the Company’s history of losses and expectation to incur significant expenses and continuing losses for the foreseeable future; the Company’ ability to execute its business model, including market acceptance of its planned electric vehicles; risks related to the Company’s limited operating history, the rollout of its business and the timing of expected business milestones, including the Company’s ability to develop and sell electric vehicles of sufficient quality and appeal to customers on schedule and on a large scale; the Company’s financial and business performance, including financial projections and business metrics and any underlying assumptions thereunder; changes in the Company’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; the Company’s ability to attract and retain a large number of customers; the Company’s future capital requirements and sources and uses of cash; the Company’s ability to obtain funding for its operations and manage costs; risks related to challenges the Company faces as a pioneer into the highly-competitive and rapidly-evolving electric vehicle industry; risks related to Harley Davidson, Inc. (“H-D”) making decisions for its overall benefit that could negatively impact the Company’s overall business; risks related to the Company’s relationship with H-D and its impact on the Company’s other business relationships; the Company’s ability to leverage contract manufacturers, including H-D and Kwang Yang Motor Co., Ltd., KYMCO Capital Fund I Co., Ltd., SunBright Investment Co., Ltd., CycleLoop Co., Ltd. and Kwang Yang Holdings Limited (collectively, the “KYMCO Group”), to contract manufacture its electric vehicles; risks related to retail partners being unwilling to participate in the Company’s go-to-market business model or its inability to establish or maintain relationships with customers for the Company’ electric vehicles; risks related to potential delays in the design, manufacture, financing, regulatory approval, launch and delivery of the Company’s electric vehicles; risks related to building out the Company’s supply chain, including the Company’s dependency on its existing suppliers and the Company’s ability to source suppliers, in each case many of which are single-sourced or limited-source suppliers, for its critical components such as batteries and semiconductor chips; the Company’s ability to rely on third-party and public charging networks; the Company’s ability to attract and retain key personnel; the Company’s business, expansion plans and opportunities, including its ability to scale its operations and manage its future growth effectively; the effects on the Company’s future business of competition, the pace and depth of electric vehicle adoption generally and its ability to achieve planned competitive advantages with respect to its electric vehicles and products, including with respect to reliability, safety and efficiency; risks related to the Company’s business and H-D’s business overlapping and being perceived as competitors; the Company’s inability to maintain a strong relationship with H-D or to resolve favorably any disputes that may arise between the Company and H-D; the Company’s dependency on H-D for a number of services, including services relating to quality and safety testing, and if those service arrangements terminate, it may require significant investment for the Company to build its own safety and testing facilities, or the Company may be required to obtain such services from another third-party at increased costs; risks related to any decision by the Company to electrify H-D products, or the products of any other company; the Company’s expectations regarding its ability to obtain and maintain intellectual property protection and not infringe on the rights of others; potential harm caused by misappropriation of the Company’s data and compromises in cybersecurity; changes in laws, regulatory requirements, governmental incentives and fuel and energy prices; the impact of health epidemics on the Company’s business, the other risks it face and the actions it may take in response thereto; litigation, regulatory proceedings, complaints, product liability claims and/or adverse; the possibility that the Company may be adversely affected by other economic, business and/or competitive factor publicity; and; the other important factors discussed in Part II, “Item 1A. Risk Factors” in this Quarterly Report, as well as in Item “1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The forward-looking statements are made as of the date of the filing of this report November 8, 2023, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The forward-looking statements in this Quarterly Report are based upon information available to the Company as of the date of this Quarterly Report, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and the Company’s statements should not be read to indicate that the Company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report and the documents that the Company references in this Quarterly Report and have filed as exhibits to this Quarterly Report with the understanding that actual future results, performance and achievements may be materially different from what the Company expects. The Company qualifies all of the forward-looking statements by these cautionary statements. The forward-looking statements in this report speak only as of the date of this Quarterly Report. Except as required by applicable law, the Company does not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of any new information, future events or otherwise.

As used in this Quarterly Report, unless otherwise stated or the context requires otherwise, references to “LiveWire,” the “Company,” “we,” “us,” and “our,” refer to LiveWire Group, Inc. and its consolidated subsidiaries.

 

			Three months ended												Nine months ended
			September 30, 2023						September 25, 2022						September 30, 2023						September 25, 2022
Revenue, net			$	8,144					$	14,708					$	22,932					$	37,615
Costs and expenses:
Cost of goods sold			7,052						13,743						23,516						36,987
Selling, administrative and engineering expense			26,435						21,988						81,650						56,706
Total costs and expenses			33,487						35,731						105,166						93,693
Operating loss			(25,343)						(21,023)						(82,234)						(56,078)
Other income, net			—						79						—						235
Interest expense related party			—						—						—						(475)
Interest income (expense)			2,726						(3)						8,172						(23)
Change in fair value of warrant liabilities			8,038						—						(2,332)						—
Loss before income taxes			(14,579)						(20,947)						(76,394)						(56,341)
Income tax (benefit) provision			(1)						(4)						63						159
Net loss			(14,578)						(20,943)						(76,457)						(56,500)
Other comprehensive loss:
Foreign currency translation adjustments			(7)						(60)						(7)						(154)
Comprehensive loss			$	(14,585)					$	(21,003)					$	(76,464)					$	(56,654)
Net loss per share, basic and diluted (Note 5)			$	(0.07)					$	(0.13)					$	(0.38)					$	(0.35)

 

LiveWire Group, Inc., a Delaware corporation, and its consolidated subsidiaries are referred to in these Consolidated financial statements and notes as the “we,” “our,” “us,” the “Company,” or “LiveWire.” The Company designs and sells electric motorcycles and electric balance bikes with related electric motorcycle parts, accessories, and apparel. The Company operates in two segments: Electric Motorcycles and STACYC.

On September 26, 2022, the Company consummated a previously announced business combination pursuant to a business combination agreement, dated as of December 12, 2021 (the “Business Combination Agreement”), by and among AEA-Bridges Impact Corp (“ABIC”), LiveWire Group Inc., (formerly known as LW EV Holdings, Inc.), LW EV Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Harley-Davidson, Inc., a Wisconsin corporation (“H-D”), and LiveWire EV, LLC (“Legacy LiveWire”), a wholly-owned subsidiary of H-D.

Pursuant to the terms of the Business Combination Agreement: (a) ABIC migrated to and domesticated as a Delaware corporation (“Domesticated ABIC”) (the “Domestication”), in connection with which all of the ABIC’s (i) outstanding ordinary shares were converted, on a one-for-one basis, into common stock, par value $0.0001 per share, of Domesticated ABIC, (ii) outstanding warrants were converted, on a one-for-one basis, into warrants to acquire one share each of common stock of Domesticated ABIC and (iii) outstanding units were canceled and instead entitle the holder thereof to, per unit, one share of common stock of Domesticated ABIC and one-half of one warrant of Domesticated ABIC; (b) H-D and Legacy LiveWire consummated the separation (the “Separation”) of the Legacy LiveWire business and the other transactions contemplated by the Separation Agreement (the “Separation Agreement”); (c) following the Domestication and immediately following the Separation, Merger Sub merged with and into Domesticated ABIC, with Domesticated ABIC surviving as a direct, wholly owned subsidiary of the Company (the “Merger”), and the Company continuing as the public company in the Merger, with each share of common stock of Domesticated ABIC being converted into the right of the holder thereof to receive one share of common stock, par value $0.0001 (“Common Stock”); (d) immediately following the Merger, H-D caused all of the membership interests of Legacy LiveWire (“Legacy LiveWire Equity”) held by ElectricSoul, LLC (the “Legacy LiveWire Equityholder”), a Delaware limited liability company and a subsidiary of H-D, to be contributed to the Company in exchange for 161,000,000 shares of Common Stock and the right to receive up to an additional 12,500,000 shares of Common Stock in the future (the “Earn-Out Shares”, and the transactions contemplated by this clause (d), collectively, the “Exchange”), and as a result of the Exchange, Legacy LiveWire became a direct, wholly owned subsidiary of the Company; (e) immediately following the consummation of the Exchange, the Company contributed 100% of the outstanding equity interests of Legacy LiveWire to Domesticated ABIC (clauses (a) through (e) collectively, the “Business Combination”).

Pursuant to investment agreements entered into in connection with the Business Combination Agreement, the KYMCO Group agreed to subscribe for an aggregate of 10,000,000 newly-issued shares of Common Stock at a purchase price of $10.00 per share for an aggregate purchase price of $100 million (the “KYMCO PIPE Investment”). The Company received a $100 million cash deposit from KYMCO during the quarter ended September 25, 2022 in advance of the pending transaction close. The $100 million cash deposit was included in Restricted Cash on the Consolidated balance sheet as of September 25, 2022.

Pursuant to the Business Combination Agreement, and an investment agreement entered into prior to the Closing, the Legacy LiveWire Equityholder agreed to subscribe for an aggregate of 10,000,000 newly-issued shares of Common Stock at a purchase price of $10.00 per share for an aggregate purchase price of $100 million (the “Legacy LiveWire Equityholder PIPE Investment” and, together with the KYMCO PIPE Investment, the “PIPE Investments”). At the Closing, the Company consummated the PIPE Investments.

Pursuant to the Business Combination Agreement, H-D caused the Legacy LiveWire Equityholder to pay and deliver to the Company an amount in cash equal to $100 million, which is the H-D Backstop Amount (as defined in the Business Combination Agreement) in exchange for 10,000,000 shares of Common Stock (the “H-D Backstop Shares”) at a purchase price of $10.00 per H-D Backstop Share. Additionally, H-D was reimbursed for $20.1 million of transaction costs and advisory fees incurred through a reduction of the proceeds provided.

In connection with the Business Combination, H-D has the right to receive up to an additional 12,500,000 shares of the Company's Common stock as Earn-Out Shares upon the occurrence of certain triggering events: (i) a one-time issuance of 6,250,000 Earn Out Shares if the volume-weighted average price (“VWAP”) of Common Stock is greater than or equal to $14.00 over any 20 trading days within any 30 consecutive trading day period; and (ii) a one-time issuance of 6,250,000 Earn Out Shares if the VWAP of Common Stock is greater than or equal to $18.00 over any 20 trading days within any 30 consecutive trading-day period ((i) and (ii) each, a “Triggering Event”), in each case, during a period beginning 18 months from the Closing Date and expiring five years thereafter (the “Earn Out Period”).

After giving effect to the PIPE Investments of $200 million, the H-D Backstop Amount of $100 million (less $20.1 million of transaction costs and advisory fees incurred by H-D through a reduction of the proceeds provided), and ABIC’s remaining cash held in trust account and operating cash in aggregate of $13.8 million (net of the special purpose acquisition company (“SPAC”) share redemption amount of $368.1 million and payment of transaction costs incurred by ABIC of $20.6 million), the Business Combination resulted in net proceeds of approximately $293.7 million. After giving effect to the Business Combination, the redemption of Initial Shares as described above, the issuance of the H-D Backstop Shares and the consummation of the PIPE Investments, there were 202,402,888 shares of Common Stock issued and outstanding. The Company also assumed the Public Warrants and Private Warrants upon consummation of the Business Combination. See further detail in Note 7, Warrant Liabilities.

The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, ABIC has been treated as the acquired company for financial reporting purposes. The net assets of ABIC were stated at carrying value, with no goodwill or other intangible assets recorded.

Throughout the notes to the Consolidated financial statements, unless otherwise noted, the “Company” and similar terms refer to Legacy LiveWire and its subsidiaries prior to the consummation of the Business Combination, and LiveWire and its subsidiaries after the consummation of the Business Combination. References to ABIC refer to the SPAC entity prior to consummation of the Business Combination. Operating results for the periods presented prior to the consummation of the Business Combination represent those of Legacy LiveWire.

In the opinion of the Company’s management, the accompanying unaudited interim Consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Consolidated balance sheet as of September 30, 2023, and the Consolidated statements of operations and comprehensive loss for the three and nine month periods then ended September 30, 2023 and September 25, 2022, the Consolidated statements of shareholders’ equity for the three and nine month periods then ended September 30, 2023 and September 25, 2022, and the Consolidated statements of cash flows for the nine months ended September 30, 2023 and September 25, 2022.

Certain information and disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting. These unaudited Consolidated financial statements should be read in conjunction with the audited Consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the Consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. All intercompany transactions within the Company have been eliminated in preparing the Consolidated financial statements.

On September 26, 2022, the Company consummated the Separation and Business Combination and became a standalone publicly traded company, and its financial statements are now presented on a Consolidated basis. Prior to the Separation and Business Combination on September 26, 2022, the Company's historical combined financial statements were prepared on a standalone carve-out basis and were derived from H-D's Consolidated financial statements and accounting records. The financial statements for all periods presented, including historical periods prior to September 26, 2022, are now referred to as “Consolidated financial statements”, and have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC. For such periods prior to the Separation, certain corporate and shared costs were allocated to the Company based on a specific identification basis, or when specific identification was not practicable, a proportional cost allocation method.

Certain assets and liabilities, including Accounts receivables, Inventories, Other current assets, Deferred tax assets, Accounts payable, Accrued liabilities, Deferred tax liabilities, Long-term supplier liability, and Other long-term liabilities included on the combined Consolidated Balance Sheet prior to the Separation, were retained by H-D post-Separation and therefore were recorded through Net Parent company investment in the Company’s combined Consolidated Financial Statements at the time of the Separation. As part of the Separation, Net Parent company investment was reclassified to Additional paid-in-capital.

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s Consolidated financial statements.

The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or service to a customer. Revenue is measured based on the consideration that the Company expects to be entitled to in exchange for the goods or services transferred. Taxes that are collected from a customer concurrent with revenue-producing activities are excluded from revenue.

Disaggregated revenue, net by major source was as follows (in thousands):

Revenue from the sale of electric motorcycles, electric balance bikes, as well as parts and accessories and apparel are recorded when control is transferred to the customer, generally at the time of shipment to independent dealers and distributors or at the time of delivery to retail customers.

The Company offers sales incentive programs to independent dealers and retail customers designed to promote the sale of its products. The Company estimates its variable consideration related to its sales incentive programs using the expected value method. The Company accounts for consideration payable to a customer as part of its sales incentives as a reduction of revenue, which is accrued at the later of the date the related sale is recorded or the date the incentive program is both approved and communicated.

The Company offers the right to return eligible parts and accessories and apparel. When the Company offers a right to return, it estimates returns based on an analysis of historical trends and records revenue on the initial sale only in the amount that it expects to be entitled. The remaining consideration is deferred in a refund liability account. The refund liability is remeasured for changes in the estimate at each reporting date with a corresponding adjustment to revenue.

Variable consideration related to sales incentives and rights to return is adjusted at the earliest of when the amount of consideration the Company expects to receive changes, or the consideration becomes fixed. Adjustments for variable consideration related to previously recognized sales were not material for the three and nine months ended September 30, 2023 and September 25, 2022.

Shipping and handling costs associated with freight after control of a product has transferred to a customer are accounted for as fulfillment costs in Cost of goods sold. The Company accrues for the shipping and handling in the same period that the related revenue is recognized.

The Company offers standard, limited warranties on its electric motorcycles, electric balance bikes, and parts and accessories. These warranties provide assurance that the product will function as expected and are not separate performance obligations. The Company accounts for estimated warranty costs as a liability when control of the product transfers to the customer.

The Company maintains certain contract liability balances related to payments received at contract inception in advance of the Company’s performance under the contract that generally relates to customer deposits for electric balance bikes and electric motorcycles. Contract liabilities are recognized as revenue once the Company performs under the contract. Contract liabilities of $428 thousand and $163 thousand were included in Accrued liabilities in the Company's Consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively.

Previously recorded contract liabilities recognized as revenue in the three months ended September 30, 2023 and September 25, 2022 was $0 and $233 thousand, respectively, and $163 thousand and $1,644 thousand in the nine months ended September 30, 2023 and September 25, 2022, respectively. The Company expects to recognize all $428 thousand of the remaining unearned revenue in 2023.

The Company’s effective income tax rate for the nine months ended September 30, 2023 was (0.1)% compared to (0.3)% for the nine months ended September 25, 2022.

The Company’s effective tax rate for each period differs from the U.S. statutory rate of 21% as the Company is not recognizing an income tax benefit related to the losses generated as there is not sufficient positive evidence regarding the ability to realize the benefit of these losses.

The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding. Diluted EPS is computed using the weighted-average number of shares of common stock, plus the effect of potentially dilutive securities. The Company applies the treasury method to calculate the dilution impact of employee stock compensation awards. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all of the potentially dilutive shares were anti-dilutive in those periods.

Computation of basic and diluted earnings per share was as follows (in thousands, except per share amounts):

(1) Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding Prior to the Business Combination date, the Company did not have any issued and outstanding common stock or any common share equivalents.

Accordingly, for the three and nine months ended September 25, 2022, the net loss per share was calculated based on the 161,000,000 shares of Common Stock distributed to H-D in exchange for the membership interests of Legacy LiveWire. At the time of the Business Combination, additional shares of Common Stock were issued, which are reflected in the weighted average number of shares of common stock outstanding as of September 30, 2023.

Diluted net loss per share is computed by giving effect to all potential shares of common stock, to the extent dilutive, including unvested restricted stock units (“RSUs”), unvested performance share units (“PSUs”), and Warrants (as defined in Note 7, Warrant Liabilities). Potential shares of common stock are excluded from the computation of diluted net loss per share if their effect would have been anti-dilutive for the periods presented or if the issuance of shares is contingent upon events that did not occur by the end of the period. For the three and nine months ended September 30, 2023, 3,334 thousand employee stock compensation plan awards were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive. For three and nine months ended September 30, 2023, 30,365 thousand of Warrants were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive. There were no anti-dilutive employee stock compensation awards or warrants for the three and nine months ended September 25, 2022. Additionally, the Company has not included the impact of the Earn-Out Shares, discussed in Note 1, Description of Business and Basis of Presentation, in the calculation of EPS as the triggering events have not occurred.

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method for electric motorcycles and related products and average costing method for electric balance bikes. Inventories, net consisted of the following (in thousands):

Accrued liabilities primarily include accrued capital expenditures of $5,371 thousand, accrued payroll and employee benefits of $6,015 thousand, and accrued engineering costs of $3,391 thousand as of September 30, 2023. Accrued liabilities primarily include accrued capital expenditures of $7,748 thousand, accrued payroll and employee benefits of $4,641 thousand, and accrued engineering costs of $4,377 thousand as of December 31, 2022.

Upon consummation of the Business Combination, the Company assumed 30,499,990 Warrants to purchase the Company’s Common Stock, comprised of 19,999,990 public warrants, originally issued by ABIC as part of ABIC’s IPO of units (the “Public Warrants”) and 10,500,000 of outstanding warrants originally issued in a private placement in connection with the IPO of ABIC (the “Private Placement Warrants”, collectively with the Public Warrants, the “Warrants”). The Warrants expire five years from the completion of the Business Combination. There were 19,865,418 and 19,999,990 Public Warrants outstanding as of September 30, 2023 and December 31, 2022, respectively, and 10,500,000 Private Warrants outstanding as of both September 30, 2023 and December 31, 2022.

Each Warrant entitles the registered holder to purchase one share of Common Stock at a price of $11.50 per share. A Warrant holder may exercise its Warrants only for a whole number of shares of Common Stock. This means only a whole Warrant may be exercised at a given time by a Warrant holder. No fractional Warrants were issued upon separation of the units and only whole warrants trade. The Company will receive the proceeds from the exercise of any warrants in cash. The Warrants will expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation.

Redemption of Warrants when the price per Common Stock share equals or exceeds $18.00: The Company may redeem the outstanding Warrants (except as described with respect to the Private Placement Warrants):

•in whole and not in part;

•at a price of $0.01 per Warrant;

•upon not less than 30 days’ prior written notice of redemption; and

•if, and only if, the reported last sales price of the Company’s Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders.

Redemption of Warrants when the price per Common Stock share equals or exceeds $10.00: Once the Warrants become exercisable, the Company may redeem the outstanding Warrants:

•in whole and not in part;

•at $0.10 per Warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the agreed table, based on the redemption date and the “fair market value” of Common Stock;

•if, and only if, the closing price of the shares of Common Stock equals or exceeds $10.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant) for any 20 trading days within the 30-trading day period ending three trading days before we send the notice of redemption to the Warrant holders; and

•if the closing price of the shares of Common Stock for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the Warrant holders is less than $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Warrants, as described above.

The Private Placement Warrants have terms and provisions that are similar to those of the Public Warrants, including as to the exercise price, exercisability and exercise period. The Private Placement Warrants will not be redeemable by the Company so long as they are held by the initial purchasers of the Private Placement Warrants or its permitted transferees and the reference value exceeds $18.00 per share. The initial Private Placement Warrant purchasers, or its permitted transferees, has the option to exercise the Private Placement Warrants on a cashless basis if the reference value is between $10.00 and $18.00. If the Private Placement Warrants are held by holders other than AEA-Bridges Impact Sponsor, LLC (the “Sponsor”) or its permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the Public Warrants.

There were no redemptions and exercises of 135 thousand of the Public Warrants during the three and nine months ended September 30, 2023. There were no exercises or redemptions of the Private Warrants during the three and nine months ended September 30, 2023.

During the three and nine months ended September 30, 2023, the Company recognized income of $8,038 thousand and expense of $2,332 thousand, respectively, as a change in fair value of warrant liabilities in the Consolidated statements of operations and comprehensive loss. The Company determined the Public Warrants and Private Placement Warrants do not meet the criteria to be classified in stockholders’ equity and the fair value of the warrants should be classified as a liability. The Company’s Warrant liability was $10,631 thousand and $8,388 thousand as of September 30, 2023 and December 31, 2022, respectively.

The Company assesses the inputs used to measure fair value using a three-tier hierarchy.

•Level 1 inputs include quoted prices for identical instruments and are the most observable.

•Level 2 inputs include quoted prices for similar assets and observable inputs.

•Level 3 inputs are not observable in the market and include the Company’s judgments about the assumptions market participants would use in pricing the asset or liability.

The Company’s assets and liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows (in thousands):

There were no significant assets or liabilities on the Company’s Consolidated balance sheets measured at fair value on a nonrecurring basis.

Money market funds include highly liquid investments with an original maturity of three or fewer months and are presented within Cash and cash equivalents in the Consolidated balance sheets. They are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy.

The Public Warrants are publicly traded under the symbol “LVWR WS” and the fair value of the Public Warrants at a specific date is determined by the closing price of the Public Warrants as of that date. As such, the Public Warrants are classified within Level 1 of the fair value hierarchy. The fair value of the Private Placement Warrants was determined using the closing price of the Public Warrants as the Private Placement Warrants have terms and provisions that are economically similar to those of the Public Warrants. The Private Placement Warrants are classified as Level 2 of the fair value hierarchy due to the use of an observable market quote for a similar asset in an active market.

Share-based awards settled in cash represent grants of share-based awards that will be settled with employees in cash and are presented within Accrued liabilities and Other long-term liabilities in the Consolidated balance sheets. They are valued using the market price of the Company’s and Parent’s stock and are remeasured at each balance sheet date and are classified under Level 1 under the fair value hierarchy.

The fair value of financial instruments classified as Cash and cash equivalents, Accounts receivable, net, and Accounts payable on the Consolidated balance sheets approximate carrying value due to the short-term nature and the relative liquidity of the instruments.

The Company provides a limited warranty on new electric motorcycles for a period of two years, except for the battery which is covered for five years. The Company also provides limited warranties on parts and accessories and electric balance bikes. The warranty coverage for the retail customer generally begins when the product is sold to the retail customer. The Company accrues for future warranty claims at the time of sale using an estimated cost based primarily on historical Company claim information. In the case of both warranty and recall costs, as actual experience becomes available it is used to update the accruals.

Additionally, the Company may from time-to-time initiate certain voluntary recall campaigns. The Company records estimated recall costs when the liability is both probable and estimable. This generally occurs when the Company’s management approves and commits to a recall. The warranty and recall liability are included in Accrued liabilities and Other long-term liabilities on the Consolidated balance sheets.

Changes in the Company’s warranty and recall liability were as follows (in thousands):

There was no liability for recall campaigns as of September 30, 2023 and December 31, 2022. As of September 25, 2022, a liability for pre-transaction warranties and recall campaigns of $787 thousand related to certain H-D branded electric motorcycles was retained by H-D in connection with the Separation and Business Combination.

Contingencies – The Company is subject to claims related to product and other commercial matters. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. Refer to Note 9, Product Warranty and Recall Campaigns, for a discussion of warranty and recall liabilities. The Company had no material product liability claims as of September 30, 2023 and December 31, 2022.

Litigation and Other Claims – The Company from time to time may be subject to lawsuits and other claims related to product, commercial, employee, environmental and other matters in the normal course of business. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. The Company, through H-D, also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and there are no material exposures to loss in excess of amounts accrued and insured for losses related to these matters.

In connection with the Business Combination, the Company entered into a number of agreements with H-D to govern the Separation and provide a framework for the relationship between the parties going forward pursuant to which the Company and/or H-D have continuing obligations to each other. All transactions with H-D subsequent to the Business Combination are considered related party transactions. Agreements that the Company entered into in connection with the Separation that resulted in related party transactions include the Transition Services Agreement, Master Services Agreement, Contract Manufacturing Agreement, Joint Development Agreement, and Tax Matters Agreement. Refer to Note 16, Related Party Transactions, of the Consolidated financial statements in the Company’s 2022 Form 10-K for additional details on the agreements entered into by the Company as part of the Separation.

During the three and nine months ended September 30, 2023, there were $3,338 thousand and $11,527 thousand, respectively, in expenses associated with services rendered in conjunction with the various service agreements with H-D, which are presented within Selling, administrative and engineering on the Consolidated statements of operations and comprehensive loss. As of September 30, 2023 and December 31, 2022, there was $21,127 thousand and $5,733 thousand due to H-D and presented as Accounts payable to related party on the Consolidated balance sheets, respectively. Of the amount outstanding to H-D as of September 30, 2023, $7,411 thousand is associated with inventory purchased under the Contract Manufacturing Agreement, $9,959 thousand is associated with services under the various service agreements with H-D, and $3,757 thousand is related to a liability for excess inventory components held by H-D that the Company expects to be obligated to reimburse H-D under the terms of the Contract Manufacturing Agreement. Of the amount outstanding to H-D as of December 31, 2022, $1,942 thousand is associated with inventory purchased under the Contract Manufacturing Agreement and $3,791 thousand is associated with services under the various service agreements with H-D.

During the three and nine months ended September 30, 2023, the Company purchased $1,566 thousand and $7,206 thousand, respectively, of inventory from H-D as part of the Contract Manufacturing Agreement.

Sales of electric motorcycles and related products to independent dealers and customers are primarily financed through Harley-Davidson Financial Services (“HDFS”), a wholly owned subsidiary of H-D; therefore, the Company’s accounts receivable related to these sales are recorded in Accounts receivable from related party on the Consolidated balance sheets. Amounts financed through HDFS, not yet remitted to the Company by HDFS, are generally settled within 30 days. As of September 30, 2023 and December 31, 2022, there is $621 thousand and $388 thousand due from HDFS and other related receivables due from H-D, which is presented as Accounts receivable from related party on the Consolidated balance sheets, respectively.

During the three and nine months ended September 30, 2023, the Company recorded $41 thousand and $51 thousand, respectively, in related party sales between the Company and H-D with $26 thousand and $33 thousand, respectively, in cost of goods sold. All sales were for the STACYC segment which sells electric balance bikes to H-D. As of September 30, 2023 and December 31, 2022, there was $32 thousand and $137 thousand due from H-D, which is presented as Accounts receivable from related party on the Consolidated balance sheets, respectively.

On September 26, 2022, the Company entered into a lease agreement with H-D to sublease a Product Development Center. Additionally, on August 28, 2023, the Company amended a lease agreement with H-D for office space to extend the term of the lease to a 12-month period expiring on September 26, 2024. These are classified as operating leases. As of September 30, 2023, the right of use assets included within Lease assets, short-term lease liabilities included within Current portion of lease liabilities, and long-term lease liabilities included within Long-term portion of lease liabilities in the Consolidated balance sheets were $314 thousand, $165 thousand, and $149 thousand, respectively. As of December 31, 2022, the right of use asset included within Lease assets, short-term lease liability included within Current portion of lease liabilities, and long-term lease liability included within Long-term portion of lease liabilities in the Consolidated balance sheets were $398 thousand, $140 thousand, and $258 thousand, respectively. In addition, the Company incurred $44 thousand and $132 thousand, respectively, in rent expense during the three and nine months ended September 30, 2023, which is included within Selling, administrative and engineering expense on the Consolidated statements of operations and comprehensive loss.

Prior to the Separation, the Company did not operate as a standalone business and the Consolidated financial statements were derived from the Consolidated financial statements and accounting records of H-D.

Prior to the Business Combination, certain costs were allocated to the Company and are reflected as expenses in the Consolidated statements of operations and comprehensive loss. The Company considers the allocation methodologies used to be reasonable, such that the allocations appropriately reflected H-D’s historical expenses attributable to the Company for purposes of the Consolidated financial statements. However, the expenses reflected in the Consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if the Company had historically operated as a standalone independent entity.

The Company’s electric motorcycles are produced in manufacturing facilities shared with H-D. Certain costs of goods sold for shared facilities and shared manufacturing of $594 thousand and $3,402 thousand, respectively, for the three and nine months ended September 25, 2022, were specifically identified or allocated, mainly based on standard cost of production.

H-D provided technology support, marketing, engineering, shared assets, finance, and other corporate and administrative services such as treasury, human resources, and legal, to the Company. These expenses of $995 thousand and $2,702 thousand, respectively, for the three and nine months ended September 25, 2022, have been allocated to the Company and are included in Selling, administrative and engineering expense in the Consolidated statements of operations and comprehensive loss, where direct assignment of costs incurred by H-D was not possible or practical. These costs were allocated using related drivers associated with the nature of the business, such as gross revenue and wholesale motorcycle shipments. As a result, the allocations of these costs fluctuated based on changes in these drivers. Other cost allocation metrics, such as headcount and square footage, were not deemed appropriate given the Company’s reliance on facilities and personnel that are shared with H-D.

Prior to the Business Combination, the Company’s treasury function maintained by H-D utilized a centralized approach to cash management and the financing of its operations. Under this centralized cash management approach, H-D provided funds to the Company.

During the nine months ended September 25, 2022, the Company borrowed $15,333 thousand under lines of credit agreements with H-D. Pursuant to the Separation Agreement, H-D elected to settle all notes payable to related party outstanding as of June 24, 2022, including accrued interest, through capital contribution and without any cash being exchanged between the Company and H-D. The settlement includes the principal amount and accrued interest of $20,766 thousand and $844 thousand, respectively. The capital contribution to settle the notes payable and accrued interest increased the Net Parent company investment.

Cash transfers from H-D related to services and funding for operations provided by H-D were $59,051 thousand for the nine months ended September 25, 2022. Net contributions from H-D are included within Net Parent company investment in the Consolidated statements of shareholders' equity.

The Company operates in two segments: Electric Motorcycles and STACYC. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations.

The Electric Motorcycles segment consists of the business activities related to the design and sales of electric motorcycles. The Electric Motorcycles segment also sells electric motorcycle parts, accessories, and apparel. The Company’s products are sold at wholesale to a network of independent dealers and at retail through a Company-owned dealer and through online sales, and direct to customers through select international partners primarily in Europe.

The STACYC segment consists of the business activities related to the design and sales of the STACYC brand of electric balance bikes for kids. The STACYC segment also sells electric balance bike parts, accessories, and apparel. STACYC products are sold in the U.S., Canada, Australia and Europe. The STACYC segment products are sold through independent retail partners in the U.S. and Canada, including powersports dealers, H-D dealers, bicycle retailers and direct to customers online. In Australia and Europe, STACYC sells its products through independent distributors.

Selected segment information is set forth below (in thousands):

			Three months ended												Nine months ended
			September 30, 2023						September 25, 2022						September 30, 2023						September 25, 2022
Electric Motorcycles
Revenue, net			$	1,338					$	4,936					$	3,582					$	12,401
Cost of goods sold			2,917						7,375						11,449						21,002
Selling, administrative and engineering expense			24,162						20,093						74,541						50,814
Operating loss			(25,741)						(22,532)						(82,408)						(59,415)
STACYC
Revenue, net			6,806						9,772						19,350						25,214
Cost of goods sold			4,135						6,368						12,067						15,985
Selling, administrative and engineering expense			2,273						1,895						7,109						5,892
Operating income			398						1,509						174						3,337
Operating loss			$	(25,343)					$	(21,023)					$	(82,234)					$	(56,078)

The following discussion and analysis is intended to help the reader understand the Company, the Company’s financial condition and results of operations, and the Company’s present business environment. The following discussion and analysis should be read together with the accompanying unaudited Consolidated financial statements and related notes included elsewhere in this Quarterly Report and the audited Consolidated financial statements and related notes in the 2022 Annual Report on Form 10-K.

LiveWire is an industry-leading all-electric vehicle brand with a mission to pioneer the rapidly growing two-wheel electric motorcycle space. The Company operates in two segments: Electric Motorcycles and STACYC.

The Electric Motorcycles segment sells electric motorcycles, related parts and accessories and apparel in the United States and certain international markets, while the STACYC segment sells electric balance bikes, related parts and accessories and apparel in the United States and certain international markets.

Electric motorcycles are sold at wholesale to a network of independent retail partners, at retail through a Company-owned dealership, through online sales and direct to customers through select international partners. Electric balance bikes are sold at wholesale to independent dealers and independent distributors, as well as direct to customers online. As discussed below, on September 26, 2022 as part of the Business Combination, the Company, which included LiveWire branded electric motorcycles and STACYC, became a separate, publicly traded company.

For the three months ended September 30, 2023, the Company’s net loss was $14,578 thousand compared to $20,943 thousand for the three months ended September 25, 2022, and was $76,457 thousand for the nine months ended September 30, 2023 compared to $56,500 thousand for the nine months ended September 25, 2022. The Company’s net losses reflect the start-up nature of the Company’s business including investments in product development as the Company continues to focus on technological innovation to support future products and growth, and investments in talent and capabilities to support the new Company.

For the three months ended September 30, 2023, the Electric Motorcycles segment operating loss was $25,741 thousand, compared to an operating loss of $22,532 thousand for the three months ended September 25, 2022, and was $82,408 thousand for the nine months ended September 30, 2023 compared to $59,415 thousand for the nine months ended September 25, 2022. The operating loss was driven by increased costs to advance the Company’s electric vehicle systems, activities associated with preparation for delivery of the Del Mar, and the cost of standing up a new organization, including growing headcount and back-office support. Refer to the Electric Motorcycles segment analysis below for further discussion.

For the three months ended September 30, 2023, the STACYC segment operating income was $398 thousand, as compared to operating income of $1,509 thousand for the three months ended September 25, 2022, and was operating income of $174 thousand for the nine months ended September 30, 2023 compared to operating income of $3,337 thousand for the nine months ended September 25, 2022. The decrease in operating income was driven by lower volumes from our independent distributors and independent dealers and increased selling, administrative and engineering expense relating to personnel costs, and increased marketing initiatives. Refer to the STACYC segment analysis below for further discussion.

On September 26, 2022, the Company consummated a previously announced business combination pursuant to a business combination agreement, dated as of December 12, 2021 (the “Business Combination Agreement”), by and among AEA-Bridges Impact Corp (“ABIC”), LiveWire EV Holdings, Inc., a Delaware corporation (now known as “LiveWire Group, Inc.”), LW EV Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Harley-Davidson, Inc., a Wisconsin corporation (“H-D”), and LiveWire EV, LLC (“Legacy LiveWire”), a wholly-owned subsidiary of H-D.

Pursuant to the terms of the Business Combination Agreement, (a) ABIC migrated to and domesticated as a Delaware corporation (“Domesticated ABIC”) (the “Domestication”), in connection with which all of the ABIC’s (i) outstanding ordinary shares were converted, on a one-for-one basis, into common stock, par value $0.0001 per share, of Domesticated ABIC, (ii) outstanding warrants were converted, on a one-for-one basis, into warrants to acquire one share each of common stock of Domesticated ABIC and (iii) outstanding units were canceled and instead entitle the holder thereof to, per unit, one share of common stock of Domesticated ABIC and one-half of one warrant of Domesticated ABIC; (b) H-D and Legacy LiveWire consummated the separation (the “Separation”) of the Legacy LiveWire business and the other transactions contemplated by the Separation Agreement (the “Separation Agreement”); (c) following the Domestication and immediately following the Separation, Merger Sub merged with and into Domesticated ABIC, with Domesticated ABIC surviving as a direct, wholly-owned subsidiary of the Company (the “Merger”), and the Company continuing as the public company in the Merger, with each share of common stock of Domesticated ABIC being converted into the right of the holder thereof to receive one share of common stock, par value $0.0001 (“Common Stock”); (d) immediately following the Merger, H-D caused all of the membership interests of Legacy LiveWire (“Legacy LiveWire Equity”) held by ElectricSoul, LLC (the “Legacy LiveWire Equityholder”), a Delaware limited liability company and a subsidiary of H-D, to be contributed to the Company in exchange for 161,000,000 shares of Common Stock and the right to receive up to an additional 12,500,000 shares of Common Stock in the future (the “Earn-Out Shares”, and the transactions contemplated by this clause (d), collectively, the “Exchange”), and as a result of the Exchange, Legacy LiveWire became a direct, wholly owned subsidiary of the Company; (e) immediately following the consummation of the Exchange, the Company contributed 100% of the outstanding equity interests of Legacy LiveWire to Domesticated ABIC (clauses (a) through (e) collectively, the “Business Combination”).

The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, ABIC was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of the Company issuing stock for the net assets of ABIC, accompanied by a recapitalization. The net assets of ABIC were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Legacy LiveWire.

See Note 1, Description of Business and Basis of Presentation, in the Consolidated financial statements for a discussion of the underlying basis used to prepare the Consolidated financial statements and further detail related to the Business Combination.

For 2023, the Company’s focus continues to be on investment into product development, including advancing the technologies, platforms and products that are expected to further the Company’s position as pioneers of the industry. The Company has continued to expand the LiveWire brand globally in 2023 with the introduction of the LiveWire ONE electric motorcycle to certain European markets and the start of production and sales of the S2 Del Mar in the third quarter.

To analyze the Company’s business performance, determine financial forecasts and help develop long-term strategic plans, management reviews the following key business metrics, which are important measures that represent the growth of the business:

•Wholesale motorcycle unit sales – The Company defines wholesale motorcycle unit sales as the number of electric motorcycles sold by the Company to independent dealers for which the Company recognized revenue during the period.    

•Company retail motorcycle unit sales – The Company defines Company retail motorcycle unit sales as the number of new electric motorcycles sold at retail by the Company through its Company-owned dealer, through online sales or direct to customers through select international partners for which the Company recognized revenue during the period. The Company began selling electric motorcycles direct to retail customers in the third quarter of 2021.

    

•Independent retail motorcycle unit sales – The Company defines independent retail motorcycle unit sales as the number of new electric motorcycles sold at retail by independent retail partners. These unit sales do not generate revenues for the Company but generate revenues for individual retail partners. The data source for electric motorcycle retail sales figures is new sales warranty and registration information provided by independent retail partners and compiled by the Company. The Company must rely on information that its independent retail partners supply concerning new retail sales, and the Company does not regularly verify the information that its independent retail partners supply. This information is subject to revision.

•Retail motorcycle unit sales – The Company defines retail motorcycle unit sales as the sum of Company retail motorcycle unit sales and independent retail motorcycle unit sales.

•Company-owned dealer – Dealer owned and operated by the Company to sell electric motorcycles, related products, and services.

•Independent retail partners (Electric Motorcycles) – Retail partners owned and operated by independent entities under contract with the Company to sell LiveWire electric motorcycles, related products, and services.

•Electric balance bike unit sales (STACYC) – The Company defines electric balance bike unit sales as the number of electric balance bikes sold by the Company for which the Company recognized revenue during the period.

•Independent retail partners (STACYC) – Retail partners owned and operated by independent entities under contract with the Company to sell STACYC electric balance bikes, related products, and services.

The following table details the key business metric amounts for the periods indicated:

(1) During the three and nine months ended September 25, 2022, the Company sold 4 units and 50 units, respectively, of H-D branded LiveWire motorcycles.

(2) Data source for Company retail motorcycle unit sales figures shown above is the Company’s records.

(3) Data source for independent retail motorcycle unit sales figures shown above is new sales warranty and registration information provided by retail partners and compiled by the Company. The Company must rely on information that its independent retail partners supply concerning new retail sales, and the Company does not regularly verify the information that its independent retail partners supply. This information is subject to revision.

The following table details the number of retail partners:

The Electric Motorcycles independent retail partners shown above include those that have been contracted by the Company to sell LiveWire motorcycles. As of September 30, 2023 and December 31, 2022, this total includes 8 and 13 partners, respectively, that were actively working to complete the licensing required to sell LiveWire motorcycles as of the end of the period. The Company intends to grow this network as it expands its distribution capabilities. After the Business Combination, the remaining inventory of H-D branded LiveWire motorcycles was owned by H-D, and any related sales are recognized by H-D. The H-D branded LiveWire motorcycles are retailed through the H-D dealership network until the remaining inventory is depleted.

The Company believes these key business metrics provide useful information to help investors understand and evaluate the Company’s business performance. Wholesale motorcycle unit shipments and Company retail motorcycle unit sales are key drivers of revenue and operating results for the Electric Motorcycles segment. Retail motorcycle unit sales made through both the Company-owned dealer and independent retail partners are a key measure of customer demand and market share for the Company’s electric motorcycles. Total electric balance bike unit sales is a key driver of revenue and profit for STACYC.

The following table presents consolidated results of operations for the three months ended September 30, 2023 and September 25, 2022 (in thousands):

The Company reported an operating loss of $25,343 thousand for the three months ended September 30, 2023 compared to an operating loss of $21,023 thousand for the three months ended September 25, 2022. The Electric Motorcycles segment reported an operating loss of $25,741 thousand for the three months ended September 30, 2023, as compared to an operating loss of $22,532 thousand for the three months ended September 25, 2022. The STACYC segment reported operating income of $398 thousand for the three months ended September 30, 2023, compared to operating income of $1,509 thousand for the three months ended September 25, 2022. Refer to the Electric Motorcycles and STACYC Segment discussions for a more detailed analysis of the factors affecting operating results.

Other income, net for the three months ended September 25, 2022 was $79 thousand related to the Company’s allocation of non-service components of net periodic benefit plan benefits from H-D. H-D sponsors a qualified pension plan and a postretirement healthcare plan which covers eligible Company employees and retirees. Prior to the Business Combination, a portion of the related net periodic benefit plan income was allocated to the Company for the three months ended September 25, 2022 based on an estimated amount per plan participant and allocations of corporate and other shared functional personnel. Subsequent to the Business Combination, the Company did not have similar allocations of net periodic benefit plan income from H-D for the three months ended September 30, 2023, and the Company does not sponsor a qualified pension plan or postretirement healthcare plan.

Interest income for the three months ended September 30, 2023 was $2,726 thousand compared to interest expense of $3 thousand for the three months ended September 25, 2022. The change was primarily driven by interest income earned on money market fund investments entered into using funds from the Business Combination. The Company had an investment of $197,000 thousand in money market funds as of September 30, 2023.

Change in fair value of warrant liabilities for the three months ended September 30, 2023 was income of $8,038 thousand. The warrant liabilities were recorded as part of the Business Combination and therefore did not exist in the prior year results for the Company. The income recognized was due to the decrease in the estimated fair value of the warrants during the three months ended September 30, 2023 due to fluctuations in the market price of the warrants. See Note 7, Warrant Liabilities, in the Consolidated financial statements for further discussion.

The income tax benefit for the three months ended September 30, 2023 was $1 thousand, as compared to income tax benefit of $4 thousand for the three months ended September 25, 2022. The Company believes there is not sufficient positive evidence for the tax benefit generated by the current period operating loss to be benefited in future periods.

The following table presents consolidated results of operations for the Electric Motorcycles segment for the three months ended September 30, 2023 and three months ended September 25, 2022 (in thousands):

Revenue for the three months ended September 30, 2023 decreased by $3,598 thousand, or 72.9%, to $1,338 thousand from $4,936 thousand for the three months ended September 25, 2022. The decrease was primarily due to lower revenue from electric motorcycles of $3,482 thousand. The 75.1% decrease in revenues from electric motorcycles was primarily driven by lower unit sales of LiveWire ONE.

Cost of goods sold for the three months ended September 30, 2023 decreased by $4,458 thousand, or 60.4%, to $2,917 thousand from $7,375 thousand for the three months ended September 25, 2022. The decrease was primarily due to lower volumes as discussed above and $1,530 thousand of H-D cost of goods sold expense allocated as part of the carve-out standalone financial statements during the three months ended September 25, 2022, which did not repeat subsequent to the Business Combination.

Selling, administrative and engineering expense for the three months ended September 30, 2023 increased by $4,069 thousand, or 20.3%, to $24,162 thousand from $20,093 thousand for the three months ended September 25, 2022. The increase was primarily due to costs to advance the Company’s electric vehicle systems, activities associated with preparation for delivery of the Del Mar, and increases in personnel costs primarily related to higher headcount to support the stand-up of the new LiveWire organization.

The following table presents consolidated results of operations for the STACYC segment for the three months ended September 30, 2023 and three months ended September 25, 2022 (in thousands):

Revenue for the three months ended September 30, 2023 decreased by $2,966 thousand, or 30.4%, to $6,806 thousand from $9,772 thousand for the three months ended September 25, 2022. The decrease was primarily due to lower revenue from electric balance bikes of $3,351 thousand. The decrease in revenue from electric balance bikes was driven by lower shipment volumes of $3,205 thousand primarily to our independent distributors, along with a decrease of $146 thousand due to product mix and promotions during the three months ended September 30, 2023.

Cost of goods sold for the three months ended September 30, 2023 decreased by $2,233 thousand, or 35.1%, to $4,135 thousand from $6,368 thousand for the three months ended September 25, 2022. The decrease was primarily due to lower volumes in alignment with the decreased revenue described above.

Selling, administrative and engineering expense for the three months ended September 30, 2023 increased by $378 thousand, or 19.9%, to $2,273 thousand from $1,895 thousand for the three months ended September 25, 2022. The increase was primarily due to increases in personnel costs and increased marketing initiatives to support growth of the business.

The following table presents consolidated results of operations for the nine months ended September 30, 2023 and September 25, 2022 (in thousands):

The Company reported an operating loss of $82,234 thousand for the nine months ended September 30, 2023 compared to an operating loss of $56,078 thousand for the nine months ended September 25, 2022. The Electric Motorcycles segment reported an operating loss of $82,408 thousand for the nine months ended September 30, 2023, as compared to an operating loss of $59,415 thousand for the nine months ended September 25, 2022. The STACYC segment reported operating income of $174 thousand for the nine months ended September 30, 2023, compared to operating income of $3,337 thousand for the nine months ended September 25, 2022. Refer to the Electric Motorcycles and STACYC Segment discussions for a more detailed analysis of the factors affecting operating results.

Other income, net for the nine months ended September 25, 2022 was $235 thousand related to the Company’s allocation of non-service components of net periodic benefit plan benefits from H-D. H-D sponsors a qualified pension plan and a postretirement healthcare plan which covers eligible Company employees and retirees. Prior to the Business Combination, a portion of the related net periodic benefit plan income was allocated to the Company for the nine months ended September 25, 2022 based on an estimated amount per plan participant and allocations of corporate and other shared functional personnel. Subsequent to the Business Combination, the Company did not have similar allocations of net periodic benefit plan income from H-D for the nine months ended September 30, 2023, and the Company does not sponsor a qualified pension or postretirement healthcare plan.

Interest expense related party for the nine months ended September 25, 2022 was $475 thousand related to outstanding related party notes payable prior to their settlement on June 24, 2022. The Company did not have similar related party notes for the nine months ended September 30, 2023.

Interest income for the nine months ended September 30, 2023 was $8,172 thousand compared to interest expense of $23 thousand for the nine months ended September 25, 2022. The change was primarily driven by interest income earned on money market fund investments entered into using funds from the Business Combination. The Company had an investment of $197,000 thousand in money market funds as of September 30, 2023.

Change in fair value of warrant liabilities for the nine months ended September 30, 2023 was an expense of $2,332 thousand. The warrant liabilities were recorded as part of the Business Combination and therefore did not exist in the prior year results for the Company. The expense recognized was due to the increase in the estimated fair value of the warrants during the nine months ended September 30, 2023, due to fluctuations in the market price of the warrants. See Note 7, Warrant Liabilities, in the Consolidated financial statements for further discussion.

The income tax provision for the nine months ended September 30, 2023 was $63 thousand, as compared to income tax provision of $159 thousand for the nine months ended September 25, 2022. The Company believes there is not sufficient positive evidence for the tax benefit generated by the current period operating loss to be benefited in future periods.

The following table presents consolidated results of operations for the Electric Motorcycles segment for the nine months ended September 30, 2023 and nine months ended September 25, 2022 (in thousands):

Revenue for the nine months ended September 30, 2023 decreased by $8,819 thousand, or 71.1%, to $3,582 thousand from $12,401 thousand for the nine months ended September 25, 2022. The decrease was primarily due to lower revenue from electric motorcycles of $8,372 thousand. The 72.0% decrease in revenues from electric motorcycles was primarily driven by lower unit sales of LiveWire ONE units and the inclusion of 50 H-D branded LiveWire units during the nine months ended September 25, 2022, prior to the accounting carve-out.

Cost of goods sold for the nine months ended September 30, 2023 decreased by $9,553 thousand, or 45.5%, to $11,449 thousand from $21,002 thousand for the nine months ended September 25, 2022. The decrease was primarily due to lower shipments of electric motorcycles, in alignment with the decreased revenue described above and $5,857 thousand of H-D cost of goods sold expense allocated as part of the carve-out standalone financial statements during the nine months ended September 25, 2022, which did not repeat subsequent to the Business Combination. This decrease was partially offset by expense of $3,757 thousand related to a liability for excess inventory held by H-D.

Selling, administrative and engineering expense for the nine months ended September 30, 2023 increased by $23,727 thousand, or 46.7%, to $74,541 thousand from $50,814 thousand for the nine months ended September 25, 2022. The increase was primarily due to costs incurred to advance the Company’s electric vehicle systems, activities associated with preparation for delivery of the Del Mar, and increases in personnel costs primarily related to higher headcount to support the stand-up of the new LiveWire organization.

The following table presents consolidated results of operations for the STACYC segment for the nine months ended September 30, 2023 and nine months ended September 25, 2022 (in thousands):

Revenue for the nine months ended September 30, 2023 decreased by $5,864 thousand, or 23.3%, to $19,350 thousand from $25,214 thousand for the nine months ended September 25, 2022. The decrease was primarily due to lower revenue from electric balance bikes of $6,377 thousand. The decrease in revenue from electric balance bikes was driven by lower shipment volumes of $6,583 thousand to our independent distributors and independent dealers, partially offset by favorable product mix and pricing of $206 thousand.

Cost of goods sold for the nine months ended September 30, 2023 decreased by $3,918 thousand, or 24.5%, to $12,067 thousand from $15,985 thousand for the nine months ended September 25, 2022. The decrease was primarily due to lower shipment volumes, in alignment with the decreased revenue described above.

Selling, administrative and engineering expense for the nine months ended September 30, 2023 increased by $1,217 thousand, or 20.7%, to $7,109 thousand from $5,892 thousand for the nine months ended September 25, 2022. The increase was primarily due to increases in personnel costs and an increase in marketing spend to promote domestic brand and initiatives for growth of business.

The Company enters into purchase orders with vendors and other parties in the ordinary course of business. During the nine months ended September 30, 2023, the Company entered into a long-term commitment with a vendor to provide certain inventory components. As of September 30, 2023, the Company’s estimated payments are $735 thousand, $2,331 thousand, $2,331 thousand, and $486 thousand for remainder of fiscal year 2023 and for fiscal years 2024, 2025, and 2026, respectively. During the nine months ended September 30, 2023, the Company recorded a liability of $3,757 thousand for excess inventory components held by H-D that the Company expects to be obligated to reimburse H-D under the terms of the Contract Manufacturing Agreement. Refer to Note 11, Related Party Transactions, for discussion of commitments with H-D. Otherwise, there have been no material changes in the Company’s cash obligations and commitments since the end of fiscal year 2022. Refer to Item 7 of our 2022 Annual Report for additional information regarding the Company’s cash obligations and commitments as of the end of fiscal year 2022.

As of September 30, 2023 and December 31, 2022, the Company’s cash and cash equivalents were $199,948 thousand and $265,240 thousand, respectively.

As an early growth company, the Company does not expect to generate positive cash flow from operations over the next twelve months. Prior to the Business Combination, H-D supported the Company’s operating, investing and financing activities. Following the Business Combination, the Company received net proceeds of approximately $293.7 million as more fully described below.

On September 26, 2022, the Company consummated the Merger with ABIC resulting in net proceeds of approximately $293.7 million, including a $100 million investment from H-D and a $100 million investment from KYMCO. Additionally, the Company received ABIC’s cash held in trust account of $13.6 million and the $100 million equity backstop provided by the H-D Backstop Amount (as defined in the Business Combination Agreement) in exchange for 10,000,000 shares of Common Stock for a purchase price of $10.00 per share pursuant to the terms of the Business Combination Agreement.

In the event of the exercise of any of Warrants for cash, the Company will receive the proceeds from such exercise. Assuming the exercise in full of all of outstanding Warrants for cash, the Company would receive an aggregate of approximately $349.2 million, but would not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. To the extent any of the Warrants are exercised on a “cashless basis,” the Company will not receive any proceeds upon such exercise. The Company expects to use any proceeds it receives from Warrant exercises for general corporate and working capital purposes, which would increase its liquidity. The Company believes the likelihood that warrant holders will exercise their Warrants, and therefore the amount of cash proceeds the Company would receive, is dependent upon the trading price of its Common Stock. As of September 30, 2023, the reported sales price of Common Stock was $6.93 per share. If the trading price of Common Stock is less than the $11.50 exercise price per share of the Warrants, the Company expects that warrant holders will not exercise their Warrants. There is no guarantee the Warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless and the Company may receive no proceeds from the exercise of Warrants. As a result, the Company does not expect to rely on the cash exercise of Warrants to fund its operations and the Company does not believe that it needs such proceeds to support working capital and capital expenditure requirements for the next twelve months. The Company will continue to evaluate the probability of Warrant exercises and the merit of including potential cash proceeds from the exercise of the Warrants in its future liquidity projections. The Company instead currently expects to rely on the sources of funding described below, if available on reasonable terms or at all.

Management believes that cash on hand, including the proceeds received from the Business Combination, will provide sufficient liquidity to meet the Company’s projected obligations, including those related to existing contractual obligations, for at least the next twelve months.

The Company plans to use its current cash on hand to support its core business operations and strategic plan, invest in new product development, and enhance its global manufacturing and distribution capabilities. The Company expects its capital expenditures and working capital requirements to increase substantially in the near future, as it grows the business, develops its customer support and marketing infrastructure and expands its research and product development efforts.

The Company’s material contractual operating cash commitments at September 30, 2023 relate to leases and inventory purchase commitments. In addition, as a result of the Business Combination completed on September 26, 2022, the Company may be subject to certain payments in the event minimum purchase commitments under the Contract Manufacturing Agreement with H-D are not met beginning in the year 2024.

The following table presents condensed highlights from the Company’s Consolidated statements of cash flows for the nine months ended September 30, 2023 and September 25, 2022 (in thousands):

The overall decrease in cash during the nine months ended September 30, 2023 was due primarily to cash used for operating activities, as described below.

The Company had negative cash flow from operating activities during the nine months ended September 30, 2023 and September 25, 2022. Net cash used in operating activities decreased by $8,314 thousand to $55,876 thousand for the nine months ended September 30, 2023 compared to $64,190 thousand for the nine months ended September 25, 2022. The decrease in negative cash flow from operating activities was primarily driven by favorable changes in inventories and accounts payable to a related party offset by unfavorable changes in other working capital amounts, including accounts receivable and accounts payable and accrued liabilities and the increase in net loss of $19,957 thousand. The increase in net loss resulted from costs to advance the Company’s electric vehicle systems, activities associated with preparation for delivery of the Del Mar, and increases in personnel costs primarily related to higher headcount to support the stand-up of the new organization.

Net cash used in investing activities increased by $2,043 thousand to $10,970 thousand for the nine months ended September 30, 2023 compared to $8,927 thousand for the nine months ended September 25, 2022. The increase was due to higher capital expenditures related to investments to support future products.

The Company expects to fund future cash flows used in investing activities with the financing raised through the Business Combination and PIPE Financing. The Company estimates capital expenditures to be between $15 million and $20 million in 2023.

Net cash provided by financing activities decreased by $171,063 thousand to $1,554 thousand for the nine months ended September 30, 2023 compared to $172,617 thousand for the nine months ended September 25, 2022. During the nine months ended September 25, 2022, the Company received a $100,000 thousand cash deposit in advance of the business combination from KYMCO Group, which was included in Restricted cash on the Consolidated balance sheet as of September 25, 2022. Additionally, during the nine months ended September 25, 2022, the Company received cash transfers from H-D of $59,051 thousand and borrowed $15,333 thousand from H-D, which was partially offset by the payment of $1,767 thousand of contingent consideration related to the STACYC acquisition.

As of September 30, 2023, the Company’s cash and cash equivalents amounted to $199,948 thousand. The Company manages its liquidity risk by effectively managing its working capital, capital expenditures and cash flows.

Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of accounts receivable. The Company limits its credit risk with respect to accounts receivable by performing credit evaluations and requiring collateral to secure amounts owed to the Company by its customers, each when deemed necessary.

Inflationary factors, such as cost increases for logistics, manufacturing, raw materials and purchased components, may adversely affect the Company’s operating results. Although the Company does not believe inflation has had a material impact on its financial condition given its lower production volumes, a high rate of inflation in the future may have an adverse effect on the Company’s ability to increase its gross margin or decrease its operating expenses as a percentage of its revenues if the selling prices of its products do not increase as much or more than its increase in costs.

The Company is also exposed to possible disruption of supply or shortage of materials, in particular for lithium-ion and other alternative battery cells and key semiconductor chip components necessary for electric vehicles, and any inability to purchase raw materials and components could negatively impact the Company’s operations.

The Company sells electric balance bikes and its electric motorcycles and related products internationally, and in most markets, those sales are made in the foreign country’s local currency. As a result, the Company’s operating results are affected by fluctuations in the values of the U.S. dollar relative to foreign currencies, however, the impact of such fluctuations on the Company’s operations to date are not material given the majority of the Company’s sales are currently in the U.S. The Company plans to expand its business and operations internationally and expects its exposure to currency rate risk to increase as it grows its international presence.

In designing and evaluating the Company’s disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of the disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Company’s principal executive officer and principal financial officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding disclosure.

There were no changes in the Company’s internal control over financial reporting, as identified in connection with the evaluation required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

The information required under this Item 1 of Part II is contained in Item 1 of Part I of this Quarterly Report on Form 10-Q in Note 10, Commitments and Contingencies, to the Notes to Consolidated financial statements, and such information is incorporated herein by reference in this Item 1 of Part II.

There have been no material changes to the principal risks that the Company believes are material to the Company’s business, results of operations, and financial condition from those disclosed in Part I, “Item 1A. Risk Factors” of the 2022 Annual Report on Form 10-K for the year ended December 31, 2022.

There were no unregistered sales of equity securities for the three and nine months ended September 30, 2023.

None.

Not applicable.

None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the third quarter of 2023.

* Filed herewith.

** Furnished herewith.

† The annexes, schedules and certain exhibits to this Exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant hereby agrees to furnish supplementally a copy of any omitted annex, schedule or exhibit to the SEC upon request.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

LiveWire Group, Inc.

Date:

November 8, 2023

/s/ Karim Donnez

Karim Donnez

Chief Executive Officer

Date:

November 8, 2023

/s/ Tralisa Maraj

Tralisa Maraj

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)