Workhorse Group Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Workhorse designs and manufactures all-electric commercial vehicles and drone systems. The filing was signed May 15, 2023.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1.69 million | $14,299 |
| Cost of sales | $5.33 million | $3.92 million |
| Gross loss | $3.63 million | $3.91 million |
| Operating expenses | $21.91 million | $15.92 million |
| Loss from operations | $25.55 million | $19.83 million |
| Net loss | $25.00 million | $22.05 million |
| Net loss per share | $0.15 | $0.15 |
| Cash used in operating activities | $32.75 million | $30.74 million |
Revenue was primarily from W4 CC vehicle sales. Gross loss remained greater than revenue; the filing does not report a gross-margin percentage. SG&A rose to $14.69 million and R&D to $7.22 million, reflecting increased compensation, headcount, prototype work and product development. Net interest moved from $2.22 million expense to $0.55 million income, mainly because of money-market interest and the absence of prior-year convertible-note costs.
At March 31, cash and cash equivalents were $79.11 million, down from $99.28 million at December 31, 2022. Working capital was $67.7 million. Inventory was $21.94 million, versus $8.85 million at year-end; management attributed the cash-flow pressure primarily to inventory build for W4 CC and W750 production. Investing cash outflow was $5.40 million, principally capital expenditures. Financing provided $17.99 million, largely from ATM share sales.
Total liabilities were $76.56 million, including $9.85 million of lease liabilities. The filing reports no conventional borrowing balance. The company had an accumulated deficit of $652.65 million. It recorded a $35 million legal reserve and a related $15 million insurance receivable.
Material changes and financing
- Sales increased substantially from the very small prior-year base, but remained low relative to production costs and operating expenses.
- Operating cash use increased year over year. Management said cash burn rose in the quarter but expected it to decrease overall for 2023, despite higher working-capital needs and R&D activity.
- Workhorse issued 14.4 million shares through its at-the-market program for net proceeds of $18.6 million. Up to $142.9 million remained available under the program at quarter-end; further equity issuance would dilute existing shareholders.
- Inventory reserves declined to $2.7 million from $59.2 million at year-end, primarily due to sale and disposal activity for discontinued C-Series inventory that had been fully reserved.
Outlook, risks and unusual items
Management said its revised product roadmap and plans to generate additional sales over the next 12 months, together with possible reductions in discretionary spending, alleviated substantial doubt about the company’s ability to continue as a going concern. The company nevertheless warned that failure to generate expected sales or control spending could result in continued substantial losses and negative operating cash flows. It expects to rely primarily on equity financing, with no assurance of obtaining funding on acceptable terms or at all.
Management cited ongoing production ramp-up for W4 CC, W750, Horsefly and Falcon, assembly services for Tropos vehicles, and development of W56 and WNext platforms. Expected 2023 facility capital expenditures were $15 million to $25 million. The company launched a Certified Dealer Program in March. Risks include production execution, customer demand, supply-chain constraints, higher commodity and inflation costs, financing needs, and dependence on government incentives such as California’s HVIP; some orders are contingent on such funding.
The securities class-action settlement, subject to court approval, provides for $15 million in cash, expected to be funded fully by insurance, and $20 million in Workhorse shares. Preliminary approval was granted, with a final approval hearing set for July 24, 2023. A related derivative settlement includes $12.5 million from directors’ and officers’ insurers and corporate governance changes; final approval remained pending. The filing also warns that limited authorized common shares could constrain future financing, compensation awards or strategic transactions. No material changes to disclosure controls were reported, and management concluded they were effective.
Important facts for investors to verify
- Whether vehicle production and deliveries generate the sales growth management expects, and whether gross losses and operating cash burn decline.
- Cash runway, 2023 capital-spending needs, and the company’s ability to raise additional capital without excessive dilution.
- Progress on W4 CC, W750 and other platform launches, supplier availability, and customer eligibility for vehicle incentives.
- Final court approval and funding mechanics for the securities and derivative settlements, including the $20 million stock component and insurance recoveries.
- Available authorized shares: the filing reports 180.6 million shares outstanding at quarter-end and about 185 million as of April 30, 2023, against 250 million authorized; confirm remaining capacity after settlement shares and other issuances.