Workhorse Group Inc. quarterly report, Q1 FY2022

Workhorse Group Inc. — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022. Workhorse designs and manufactures all-electric commercial delivery vehicles and drone systems. Financial statements are unaudited.

Key financial results

Revenue fell sharply, primarily due to lower vehicle sales volume. Gross loss narrowed as cost of sales declined, but operating expenses rose, including higher personnel and litigation-related professional costs. The 2021 net loss included a $136.6 million loss related to the fair value of the Company’s prior Lordstown Motors investment, so the year-over-year net-loss comparison is substantially affected by that item. Q1 2022 net interest expense was $2.2 million, versus $14.9 million of net interest income in Q1 2021.

Financial position and liquidity

• Cash and cash equivalents were $167.0 million at March 31, 2022, down $34.6 million from year-end 2021.
• Current assets were $188.6 million and current liabilities $21.5 million. Total liabilities were $53.3 million.
• Inventory, net, was $12.7 million after a $77.7 million reserve against $90.4 million of gross inventory.
• At quarter-end, convertible notes had $27.5 million of principal and a reported fair value of $25.1 million. On April 21, 2022, the notes were exchanged for approximately 7.8 million common shares; the Company then had no convertible notes outstanding. Lease liabilities remained.
• A $175 million at-the-market equity program was established in March; no shares had been sold under it by March 31. Management said existing capital resources were expected to support projected needs for at least 12 months, while noting additional funding may later be required and capital could be raised in 2022.
• Management expected $25 million–$35 million of 2022 facility capital expenditures. Minimum lease payments were $10.1 million at quarter-end.

Business developments, outlook, and risks

• In February 2022, Workhorse agreed to purchase 1,500 GreenPower base vehicles, complete them as W750 electric step vans, and deliver them to customers in the U.S. and Canada. Base-vehicle deliveries were expected to begin in Q3 2022.
• Workhorse completed C-1000 certification testing in February. The platform was determined eligible for certification and reintroduction as a limited-production vehicle with constrained cargo capacity. The Company expected to complete corrective actions across the existing fleet during 2022 and return most recalled vehicles to customers.
• The C-1000 recall and remediation remain uncertain; the Company cannot estimate the ultimate resolution or rule out potentially significant government fines or penalties. It also disclosed an E-Series compliance issue requiring retrofits.
• The SEC and DOJ were investigating matters relating to trading and the USPS contract announcement, as well as vehicle revenue recognition. The Company was cooperating and could not predict the scope, duration, or outcome. Securities class and shareholder derivative lawsuits were also ongoing; potential losses were not quantified in the filing.
• Management cited supplier and semiconductor constraints, COVID-related disruption, higher commodity, freight, labor, and raw-material costs, inflation, rising interest rates, and geopolitical uncertainty as business risks.

Important facts for investors to verify

• Progress and costs of C-1000 and E-Series compliance work, recall remediation, and customer vehicle returns.
• W750 supplier deliveries, production readiness, customer demand, and revenue conversion.
• Cash burn, planned facility spending, and whether the ATM program or other financing is needed; consider potential dilution.
• Outcomes and potential costs of regulatory investigations and litigation, which remain uncertain.
• Inventory recoverability and adequacy of reserves, given the substantial gross inventory reserve.