Workhorse Group Inc. (WKHS) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. Workhorse Group Inc. is an American technology company designing, developing, and manufacturing fully electric commercial vehicles. The company is currently focused on its W4CC, W56, and W750 vehicle programs and operates a "Stables by Workhorse" route for last-mile delivery data collection. The company executed a 1-for-20 reverse stock split on June 17, 2024, to regain compliance with Nasdaq listing requirements.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|
| Revenue | $0.84 million | $2.18 million | $5.66 million |
| Net Loss | $(26.32) million | $(55.48) million | $(48.02) million |
| Loss Per Share (Diluted) | $(1.40) | $(3.26) | $(5.40) |
| Operating Cash Flow | N/A | $(30.06) million | $(65.80) million |
| Cash & Equivalents (End of Period) | $5.31 million | $5.31 million | $62.38 million |
| Working Capital | $17.78 million | $17.78 million | N/A |
| Inventory (Net) | $46.50 million | $46.50 million | $45.41 million |
| Convertible Notes (Fair Value) | $9.65 million | $9.65 million | $20.18 million |
Note: Gross margin is negative due to high cost of sales relative to low revenue volume. YTD 2024 Net Loss increased compared to YTD 2023 primarily due to fair value adjustments on warrants and notes.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 61% year-over-year for the six months ended June 30, 2024, driven by lower W4CC vehicle sales and slower industry-wide EV adoption.
- Cost Reductions: Operating expenses decreased significantly due to a 20% reduction in force (excluding direct labor), executive compensation deferrals, and the divestiture of the Aero drone business. R&D expenses dropped 55% YTD compared to 2023.
- Inventory Reserves: Inventory reserves increased by $4.0 million to $12.5 million due to excess inventory from slower-than-anticipated sales.
- Financing Activity: The company issued $22.3 million in aggregate principal of 2024 Senior Secured Convertible Notes and repaid the 2026 Green Senior Convertible Notes in full during Q1 2024.
- Divestiture: Completed the sale of the Aero drone business on June 6, 2024, resulting in a $0.7 million loss but expected monthly cost savings of $0.4 million.
Outlook, Risks, and Management Commentary
- Going Concern Warning: Management has raised substantial doubt regarding the company's ability to continue as a going concern for the next 12 months. Current cash levels ($5.3 million) are insufficient to fund operations without additional financing.
- Liquidity Plan: The company relies on raising capital through the 2024 Securities Purchase Agreement (up to $112.7 million remaining available), the At-The-Market (ATM) program ($95.6 million remaining), and potential asset sales (e.g., Union City facility sale-leaseback).
- Market Risks: Risks include supply chain disruptions, volatility in commodity prices (lithium, steel), potential elimination of government subsidies, and the outcome of the Coulomb Solutions Inc. (CSI) litigation regarding unpaid invoices exceeding $4 million.
- Internal Controls: The company disclosed a material weakness in internal controls related to the review of fair value calculations for convertible notes and warrants, rendering disclosure controls ineffective as of June 30, 2024.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $5.3 million cash balance against monthly burn rates and the timeline for closing additional tranches of the 2024 Notes.
- Financing Conditions: Confirm the status of the 2024 Securities Purchase Agreement, specifically the requirement for the investor to convert and sell shares before new tranches can be issued.
- Legal Exposure: Monitor the status of the Coulomb Solutions Inc. (CSI) litigation and the potential impact of a $4+ million judgment on liquidity.
- Inventory Realizability: Assess the $46.5 million inventory balance against current sales velocity and the adequacy of the $12.5 million reserve.
- Asset Sale Progress: Track negotiations for the sale-leaseback of the Union City, Indiana manufacturing facility, which is critical to the liquidity plan.