Workhorse Group Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Workhorse designs and manufactures electric commercial vehicles and drone systems. Financial statements are unaudited.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.0 million | $1.5 million | $8.7 million | $1.6 million |
| Gross loss (margin) | $3.5 million (about -116%) | $8.0 million (about -514%) | $11.6 million (about -134%) | $14.9 million (about -945%) |
| Operating expenses | $17.5 million | $40.9 million | $58.5 million | $74.9 million |
| Operating loss | $21.1 million | $48.8 million | $70.1 million | $89.7 million |
| Net loss | $30.6 million | $35.4 million | $78.7 million | $78.6 million |
Q3 revenue included reversal of a $2.4 million sales allowance related to W4 CC vehicles. Revenue for the nine months was primarily from W4 CC vehicle sales. The filing reports no income-tax benefit. Q3 net loss included a $10.0 million impairment charge on the Tropos investment.
Cash, liquidity and financing
- Cash and cash equivalents were $38.9 million at September 30, 2023, down from $99.3 million at December 31, 2022. Working capital was $71.9 million; accumulated deficit was $706.3 million.
- For the first nine months, operating cash use was $95.5 million versus $66.0 million a year earlier; investing cash use was $16.5 million versus $14.7 million. Cash provided by financing was $51.7 million, mainly from stock sales through the ATM program.
- Accounts payable and lease liabilities were reported; the filing reports no drawn conventional debt. A $5.0 million revolving inventory floorplan facility was undrawn and available at quarter-end. Lease liabilities totaled $9.2 million.
- Inventory, net, was $40.8 million, up from $8.9 million at year-end, as the company built inventory for vehicle programs. Property and equipment, net, rose to $37.5 million from $21.5 million.
Changes and notable items
- Year-to-date revenue increased from $1.6 million to $8.7 million, but remained modest relative to operating costs. Gross loss narrowed year over year, while operating cash use increased, primarily due to initial inventory builds for W4 CC, W750 and W56 production.
- SG&A declined year over year, largely because the comparable 2022 period included securities and derivative litigation settlement expenses. R&D increased for the nine-month period.
- In September, Workhorse issued 25.4 million shares valued at $20.0 million for the securities class-action settlement. The company reported no further financial obligations from the settled securities and shareholder derivative actions. It also issued 63.3 million shares under its ATM program in the first nine months, raising $52.8 million net; $108.0 million remained available under the program at quarter-end.
Outlook, risks and management commentary
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern for the year following issuance of the financial statements. Plans include increasing vehicle and service sales, reducing expenses and non-contracted capital spending, and raising capital through equity, debt, asset sales or other strategic transactions. There is no assurance these plans will succeed.
- Workhorse began production of W56 vehicles in strip-chassis and Step Van variants during Q3. Management described continued work on W4 CC and W750 production and development of future programs, including WNext; no quantified revenue or production guidance is provided.
- Management attributed slower-than-anticipated EV adoption and limited incentives to weaker sales demand. After quarter-end, on November 8, 2023, CARB approved the W4 CC and W750 for California’s HVIP program; management expects this to support demand.
- Risks include production scale-up and customer demand, access to capital, input-cost inflation and supply-chain constraints, reliance on government incentives, and potential dilution from equity financing. The company also disclosed a Nasdaq minimum-bid-price deficiency notice received September 22, 2023; it must meet the bid-price requirement by March 20, 2024 or face potential delisting, subject to applicable extensions and requirements.
- Management reported disclosure controls and procedures were effective at September 30, 2023 and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Cash runway, operating cash burn and whether the company can obtain additional financing before liquidity needs arise.
- Vehicle deliveries, production ramp, gross margins and the extent to which reported sales depend on allowance reversals or incentives.
- Whether CARB HVIP eligibility translates into customer orders and revenue, and whether the W56 and other programs meet production plans.
- ATM issuance, remaining capacity and resulting dilution; also the status of Nasdaq listing compliance.
- Tropos investment impairment and the continuing assembly-services obligations, along with inventory recoverability and future capital requirements.