Workhorse Group Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing was signed March 25, 2016. This is an annual report, not a standalone fourth-quarter earnings report; quarterly Q4 financial results are not separately provided in the filing text.
Business context
Workhorse designs and develops medium-duty electric and range-extended trucks, electric powertrains, fleet telematics, and truck-integrated delivery drones. In 2015, it was moving toward OEM production at its Union City, Indiana facility, while continuing product development. Revenue remained limited and was associated with UPS prototype deliveries.
Financial results and position
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $139,980 | $177,500 |
| Net loss | $(9.43) million | $(6.61) million |
| Basic and diluted loss per share | $(0.55) | $(0.49) |
| Operating expenses | $8.60 million | $6.39 million |
| Research and development | $4.74 million | $3.44 million |
| Selling, general and administrative | $3.86 million | $2.95 million |
| Net interest expense | $965,884 | $398,963 |
| Cash and cash equivalents at year-end | $7.68 million | $442,257 |
| Net cash used in operating activities | $(8.22) million | $(4.47) million |
| Current assets | $10.91 million | $909,630 |
| Current liabilities | $18.42 million | $3.27 million |
| Working capital | $(7.52) million | $(2.36) million |
| Stockholders’ deficit | $(3.78) million | $(809,387) |
Revenue declined about 21% year over year, while the net loss widened about 43%. Operating expenses rose about 35%, reflecting higher sales and technical staffing, engineering, prototypes, and vehicle testing; interest expense also increased. Operating cash use increased about 84%. Financing provided $15.52 million, primarily from notes payable and common-stock issuance, and funded the increase in year-end cash. The filing does not provide a clear gross profit or gross margin value.
At December 31, 2015, current liabilities included $13.53 million of notes payable and $2.77 million of current long-term debt. The secured Union City plant debenture was due in March 2016. The filing reports no revolving credit facility. Cash was reported at $5.6 million as of March 25, 2016, below the year-end balance.
Business developments and outlook
- UPS placed a 2015 Prime Order for 125 E-GEN trucks at $49,900 per truck, or approximately $6.24 million in stated order value. The delivery schedule called for 20 vehicles monthly beginning February 2016, subject to scheduling changes. Management cautioned that financing, parts availability, and production execution could prevent timely delivery; further orders were not assured.
- UPS also ordered 18 E-100 all-electric vans. Deliveries were planned to be completed by the beginning of the third quarter of 2016; the filing describes the order’s approval and delivery status inconsistently in different sections.
- Workhorse was a prequalified supplier for the USPS Next Generation Delivery Vehicle procurement. The USPS had not made an award; a potential award was anticipated in 2017. Workhorse and a partner submitted an RFP response in February 2016.
- The FAA granted a Section 333 exemption in November 2015 for HorseFly research and development testing. Commercial drone operations remained dependent on regulatory developments.
- Management expected continued negative operating and investing cash flows, higher development and commercialization spending, and a need for additional capital. The filing mentions an approximately $15 million funding need, but its related timing language is unclear.
Risks, contingencies, and unusual items
- The auditor’s opinion was unmodified, but included a going-concern explanatory paragraph: limited sales, negative working capital, and stockholders’ deficit raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements included no adjustments for the outcome of that uncertainty.
- Workhorse had cumulative losses of $43.5 million since inception and expected losses to continue. It depended on external financing and had no committed credit facility.
- Manufacturing scale-up, supplier availability and pricing, customer concentration, vehicle acceptance, and execution of the UPS orders were material business risks. The Company also identified competition, product safety and liability, and evolving vehicle and drone regulation as risks.
- The Company raised capital through convertible notes and equity. The filing reports $13.53 million of notes payable at year-end and also describes notes that were to convert into shares; the precise year-end conversion status and resulting dilution should be checked against the financial-statement notes and subsequent filings.
- A one-for-ten reverse stock split became effective December 11, 2015. Workhorse’s common stock began trading on Nasdaq under WKHS in January 2016.
Important facts for investors to verify
- Actual delivery, customer acceptance, cash collection, and unit economics for the 125 UPS E-GEN trucks and 18 E-100 vans.
- Availability and terms of additional financing, the March 2016 plant-debt maturity, and the status of the reported convertible notes and related share issuance.
- Current cash, working capital, production costs, and funding required to scale Union City operations.
- Progress and outcome of the USPS procurement, which was not an awarded contract at the filing date.
- FAA and other regulatory approvals required before HorseFly can be commercialized, and whether management’s projected vehicle cost savings are realized in customer operations.