8-K: Workhorse Group Secures $6.3 Million in New Convertible Notes Amidst Restructuring Efforts

Workhorse Group has issued an additional $6.3 million in senior secured convertible notes as part of a larger financing agreement, while also implementing cost-saving measures and facing a lawsuit.

Summary

• Workhorse Group has entered into a third supplemental indenture to issue $6,285,714 in Series A-3 Senior Secured Convertible Notes due in 2025.
• This issuance is part of a larger securities purchase agreement for up to $139 million in notes and warrants.
• The new notes have a 12.5% original issue discount, resulting in $5.5 million in proceeds before fees and expenses.
• The notes bear interest at 9% per annum, which can be paid in cash or compounded into the principal, and increase to 18% upon an event of default.
• The notes are convertible into common stock at a price that is the lower of $0.1367 or a variable price based on the volume weighted average price of the stock, with a floor of $0.0420.
• The company has also received orders for 141 W4CC trucks, with 30 already shipped, and 68 W56 trucks, with shipments expected to begin in 2024.
• Workhorse is pursuing cost-saving measures, including furloughing 73 employees, which is expected to save $300,000 per month.
• The company is also divesting its Aero drone business, expecting savings of $375,000 per month.
• A lawsuit has been filed against Workhorse by Coulomb Solutions Inc. for approximately $4 million in unpaid invoices.
• Preliminary unaudited financials for Q1 2024 show net sales of $1.3 million, a net operating loss of $18.1 million, and cash and cash equivalents of $6.7 million as of March 31, 2024.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including a lawsuit, poor Q1 results, and a need for cost-cutting measures. While there are some positive developments like new orders and cost-saving initiatives, the overall tone is negative due to the company's precarious financial position and operational difficulties.

Positives

• The company has secured additional funding through the issuance of convertible notes.
• Workhorse has received significant orders for its W4CC and W56 trucks.
• Cost-saving measures are being implemented, including employee furloughs and the divestiture of the Aero business.
• The company is working to restructure payment terms with vendors.
• The company has added three new dealers to its network in the past thirty days.

Negatives

• The company is facing a lawsuit from a supplier for approximately $4 million.
• The sale and leaseback transaction for the Union City facility is unlikely to be completed at the original price.
• The company has furloughed 73 employees, indicating financial strain.
• Preliminary Q1 2024 results show a net operating loss of $18.1 million and a decrease in sales compared to the previous quarter.
• Cash and cash equivalents have decreased significantly from $25.8 million at the end of 2023 to $6.7 million as of March 31, 2024.

Risks

• The company's ability to meet its financial obligations is uncertain, as evidenced by the need for cost-cutting measures and the lawsuit.
• The failure to complete the sale and leaseback transaction at the expected price could further strain the company's finances.
• The company's ability to reinstate furloughed employees is not guaranteed.
• The company's ability to achieve profitability is uncertain given the current financial results.
• The company is dependent on the receipt of HVIP vouchers for truck deliveries in California.
• The company's ability to raise additional capital is uncertain.

Future Outlook

The company expects to begin shipments of W56 trucks in 2024, complete the divestiture of its Aero business in the second fiscal quarter of 2024, and is exploring alternative sale and leaseback options for its Union City facility. The company also intends to reinstate furloughed employees when its financial and operational position permits.

Management Comments

• The company is working with vendors to extend or restructure payment terms.
• The company intends to reinstate all furloughed employees when the company's financial and operational position permits.

Industry Context

The electric vehicle industry is facing challenges related to supply chain disruptions, cost increases, and competition. Workhorse's struggles with profitability and cash flow are not unique in this sector, as many companies are working to scale production and achieve financial stability. The company's focus on cost-cutting and securing additional financing reflects the broader industry trend of companies seeking to optimize operations and secure capital.

Comparison to Industry Standards

• Workhorse's Q1 2024 revenue of $1.3 million is significantly lower than established EV manufacturers like Rivian, which reported $1.2 billion in revenue in Q1 2024, and even smaller players like Canoo, which reported $0.1 million in revenue in Q1 2024.
• The net operating loss of $18.1 million for Workhorse is substantial compared to companies like Rivian, which reported a net loss of $1.45 billion in Q1 2024, and Canoo, which reported a net loss of $110.7 million in Q1 2024. However, these companies are at different stages of development and have different cost structures.
• Workhorse's cash position of $6.7 million is concerningly low compared to Rivian's $7.86 billion and Canoo's $105 million in cash and cash equivalents, indicating a higher risk of financial distress.
• The company's reliance on convertible notes for financing is a common strategy for early-stage EV companies, but the high discount and interest rates suggest a higher cost of capital compared to more established players.
• The company's cost-cutting measures, including employee furloughs, are similar to actions taken by other EV companies facing financial challenges, such as Lordstown Motors, which also implemented significant cost reductions.

Legal Proceedings

• Coulomb Solutions Inc. has filed a lawsuit against Workhorse for approximately $4 million in unpaid invoices.

Stakeholder Impact

• Shareholders face potential dilution from the conversion of notes into common stock.
• Employees have been impacted by the furlough of 73 workers.
• Customers may be concerned about the company's ability to fulfill orders given its financial challenges.
• Suppliers may be concerned about the company's ability to pay its bills.
• Creditors face increased risk due to the company's financial difficulties.

Next Steps

• The company will continue to work on the sale and leaseback transaction for its Union City facility.
• The company will continue to implement cost-saving measures.
• The company will work to resolve the lawsuit with Coulomb Solutions Inc.
• The company will begin shipments of W56 trucks in 2024.
• The company will complete the divestiture of its Aero business in the second fiscal quarter of 2024.

Key Dates

Keywords

convertible notes, financing, electric vehicles, cost reduction, lawsuit, truck orders, sale leaseback, furlough, financial results, W4CC, W56, Aero business