Workhorse (NASDAQ:WKHS) Q2 2020 Earnings – Surge in Interest Expense Results in Record Loss

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Workhorse Group (NASDAQ:WKHS), the manufacturer of EVs and utility vehicles, has been riding a wave of investor euphoria recently as its stock registered a whopping gain of 528 percent relative to the share price of $2.63 on the 1st of June. Today, the company has come under a renewed focus as it gears up to announce its earnings for the second quarter of 2020.

Workhorse Q2 2020 Earnings Scorecard

For the three months that ended on the 30th of June, Workhorse reported $92,000 in revenue.

(All figures are in thousands of dollars)

Workhorse reported $5.57 million in operating expenses for the quarter.

(All figures are in millions of dollars; SGA refers to Selling, General and Advertisement expenses)

Workhorse also reported $26.20 million in Cash and Cash Equivalent for Q2 2020.

(All figures are in millions of dollars)

Finally, Workhorse reported a net loss of $131 million.

(All figures are in millions of dollars)

Workhorse also provided the following business highlights:

• August 2020: Workhorse strategic partner Lordstown Motors Corp. ("LMC") entered into a business combination agreement with DiamondPeak Holdings Corp., a special purpose acquisition company, that will result in LMC becoming a publicly listed company on the NASDAQ under the ticker symbol "RIDE."

Post-transaction, which is expected to close in the fourth quarter of this year, Workhorse will retain its 10% ownership stake in the merged company, which is estimated at approximately $160 million based on a $1.6 billion valuation, as well as other royalty considerations previously outlined in its intellectual property licensing agreement from November 2019.

• July 2020: Obtained HVIP Eligibility from CARB, qualifying certain Workhorse C-Series models for monetary vouchers of up to $50,000 per vehicle.

• July 2020: Received initial purchase order for 20 C-1000 trucks from eTrucks LLC, a Cincinnati-based, newly-launched truck buyer, reseller and financier.

• July 2020: Closed a $70 million financing through a Senior Secured Convertible Note with a single institutional investor.

• July 2020: Delivered two C-1000 electric step vans for initial use through Ryder System, Inc.'s ChoiceLease and SelectCare product lines, as well as for short-term rentals on COOP by Ryder® program, a peer-to-peer truck sharing platform.

• July 2020: Awarded Executive Order: A-445-0003 from CARB for the C-Series trucks, designating the C-Series vehicles as zero-emission in the state of California and permitting vehicle sales to all 50 states. Combined with its passing of Federal Motor Vehicle Safety Standards (FMVSS) tests for the C-650 and C-1000 all-electric delivery vans in June, Workhorse is the only American all-electric OEM designing and manufacturing last mile delivery vehicles to successfully complete this level of testing with both entities.

• June 2020: Added to the broad-market Russell 3000® Index at the conclusion of Russell's annual reconstitution.

• May 2020: Joined the Small UAV Coalition as an associate member alongside leading consumer and technology companies such as Amazon Air, Wing, Intel, PrecisionHawk, and Verizon to advocate for U.S. leadership in the research, development, production, and application of unmanned aerial systems (UAS).

A major contributor to the loss was the increase in Workhorse's net interest expense to $124.3 million from $15.9 million in the comparable quarter last year. The company noted in its earnings release:

"It should be noted that this significant increase of $108.4 million in interest expense was almost exclusively due to the change in fair value of our convertible note and the mark-to-market adjustment for some non-dilutive warrants issued to a lender."

It goes on to state:

"Both of these GAAP adjustments are non-cash and primarily dependent on the underlying stock components of financial instruments. These large adjustments were the result of a stock price of $17.39 on June 30^th compared to $1.81 on March 31^st. Due primarily to these non-cash adjustments, our net loss was $131.3 million compared to a net loss of $20.1 million in the second quarter of 2019. A better indication of operating performance would be loss from operations which was $7.0 million this quarter compared to $4.1 million in the second quarter of 2019."

Investors have reacted negatively to the company’s earnings announcement. As an illustration, the stock is currently down around 3 percent in the pre-market trading:

Source

We reported on the 3rd of August that Workhorse stands to benefit as Lordstown Motors entered into a definitive merger agreement with DiamondPeak Holdings Corp. (NASDAQ:DPHC) – a Special Purpose Acquisition Company (SPAC). The benefit will accrue due to a 10 percent stake that Workhorse currently maintains in Lordstown Motors. The deal would unlock a significant upside potential for the Ohio-based EV manufacturer.