Sales continued to fall at Workhorse (NASDAQ: WKHS) as it delivered fewer trucks in the first quarter of 2019 during its transition to an electric-vehicle maker, the company said. As part of that, the company has engaged a financial partner that is helping it explore a sale of its SureFly personal helicopter business, CFO Paul Gaitan said on the company’s earnings call.
The company reported sales of $364,000, down from $560,000 in the first quarter of 2018. Expenses also decreased in several areas, including in research and development, which saw a 42 percent decline to $1.4 million from $2.3 million. The decline was attributed to lower prototype expenses related to the U.S. Postal Service (USPS) Next Generation Delivery Vehicle (NGDV) and SureFly.
USPS has not made a final decision yet on which company’s vehicle it will choose, but Workhorse CEO Duane Hughes said the company remains “confident in the strength and quality of our prototype vehicles in the test progress.”
SureFly is an eVTOL (electric vertical takeoff and landing) aircraft. Workhorse has received FAA approval to test the copter but is still trying to secure approval to sell it. Then-CEO Steve Burns told FreightWaves earlier this year the company is “six months into a two-year journey” to get the product approved and sold.
Burns noted that there is plenty of interest in the two-person SureFly, from paramedic applications to the military, which is looking for a fully autonomous operation where it can fly the SureFly into an area, drop supplies and fly it out without putting service members in harm’s way. The copter could also remove a seat to be used for cargo delivery.
Burns, co-founder of Workhorse, stepped down as CEO in February. He serves as a consultant to the company, focused on the development and future monetization of SureFly. Hughes, the former chief operating officer, succeeded Burns as CEO.
SureFly sale likely
On the earnings call, Gaitan said it was the “best course of action” for Workhorse to seek a sale of SureFly so it can focus on the building of its electric vehicle platforms.
Workhorse said that selling, general and administrative (SGA) expenses also decreased 12 percent to $2.1 million from $2.4 million in the same period last year. The decrease in SGA expenses was primarily due to decreased spending in areas such as marketing as well as decreases in other employee-related expenses.
“In the first quarter of 2019, we continued to make considerable progress in our transition from a development-oriented organization to a production-focused electric vehicle manufacturer,” Hughes said. “Through our ongoing strategic relationship with Duke [Energy Corp.], we now have the ability to create an even more cost-competitive alternative, which also addresses one of the biggest issues preventing large-scale electric fleet adoption – infrastructure needs.”
Workhorse reported total operating expenses decreased 27 percent to $3.5 million from $4.7 million in the same period last year. The decrease in total operating expenses was due to the lower expenses mentioned earlier. Net loss in the quarter was $6.3 million, compared with a net loss of $6.4 million in the first quarter of 2018. The improvement in net loss was due primarily to the significant reduction in operating expenses, the company said.
As of March 30, 2019, the company had cash, cash equivalents and short-term investments of $2.8 million compared to $1.5 million as of December 31, 2018.
Workhorse has been building an electric van from the ground up. That work is continuing.
Duke Energy to act as lessor
Workhorse also has recently extended or entered into a number of agreements in the last two months. Workhorse is working with Duke Energy Corp. (NYSE: DUK) on a battery leasing program that would provide Duke customers a cost-competitive elective vehicle product alternative.
As part of the relationship, signed on November 28, 2018, Duke agreed to purchase 615,000 Panasonic battery cells from Workhorse for $1.3 million. Duke Energy intends to explore further development of eFleet solutions for Workhorse customers, which may include single-point management and financing of all the Behind the Meter (BTM) infrastructure necessary to support depot-wide electrification, vehicle/battery leasing and distributed energy resources.
That agreement has been expanded to now make Duke a lessor of the electric trucks. This allows Duke to purchase the trucks, but puts it in position to recycle the batteries after they conclude their vehicle lifecycle. Those batteries can be used as energy storage solutions, for instance, potentially lowering the vehicle cost to the fleet, Hughes said.
Workhorse also received $35 million in funding from Marathon Asset Management late last year. That will be used for working capital, parts acquisitions to fulfill existing and future customer purchase orders and contracts as well as to satisfy full repayment of the senior secured notes incurred in July 2018. That credit agreement has been amended to extend the deadline for the Company’s $4.0 million minimum liquidity covenant to May 31, 2019.
A “subscription agreement” with existing Workhorse investors to sell 3,957,432 shares of common stock at a price per share of $0.74 was entered into, resulting in net proceeds of $2.9 million that will be used for working capital and general corporate purposes.
And finally, Workhorse has partnered with Prefix Corporation to finalize the design, development and production of the N-GEN series all-electric delivery van, incorporating features such as light-weighting the vehicle to improve mileage, performance, driver safety and reducing the burden of infrastructure requirements.
“We remain focused on our ‘Trucks First’ initiative, which has enabled us to make significant advances in all phases of the manufacturing process,” Hughes said. “Most notably, our renewed partnership with Prefix Corporation has us in solid positioning to begin producing fully-redesigned vehicles that now incorporate additional features that will streamline cost and increase production efficiency. We remain on schedule with respect to manufacturing and delivery of the new N-GEN, which should commence in the fourth quarter of this year.”
