- Workhorse has continued to suffer from setbacks to its tepid EV dream.
- Fiscal 2021 third quarter revenue turned negative as the company suspended deliveries and recalled its C-1000 delivery truck.
- The company still finds itself facing an uncertain future even as demand for EVs booms.
To be fair to Workhorse (NASDAQ:WKHS) bulls, the performance of the company's common shares over the last few weeks has not been atypical, reflecting pretty much every other company within the small-cap and speculative growth spaces. Workhorse is now trading at new lows after falling 87.6% from its 52-week high. The struggling EV company has found it difficult to land a foothold in the booming but still nascent North American commercial EV market. This comes even as other companies within the space take off. The loss of the USPS Next Generation Delivery Vehicle contract was a material event that the company has never truly recovered from.
This has left the remaining Workhorse bulls in a conundrum and cratered broader investor sentiment in the company and confidence in its management. What does the future now hold? Look at the recent earnings result for its fiscal 2021 third quarter. This saw the company realize negative revenue, a 203% decline from its year-ago quarter. At this point, it is important to note that Workhorse is not an early-stage startup. The company has been operating on its current iteration since 2015. Hence, you would not be misplaced for thinking that there is a significant lack of urgency for Workhorse to realize actual revenue by building and selling a tangible product to a market with what is fast starting to have a rapacious appetite for EVs.
Earnings Continue To Be A Non Event And Recalls See Revenue Go Negative
Workhorse's fiscal 2021 third quarter earnings saw the company bring in negative revenue of -$0.58 million, a 203.6% decline from the year-ago quarter and a $1.48 million miss on consensus estimates. The negative figure was due to customer refunds related to the recall of the company's C-1000 vehicle. The company suspended deliveries of its all-electric cargo delivery vehicle in September and issued a recall for a further 41 C-1000s. The stated reason was that additional testing to certify the vehicles under Federal safety standards was required and this should be completed in the fourth quarter of this year.
The discombobulation and inversion of revenue growth during the quarter contributed to material operating weakness and increased expenses. Firstly, the cost of revenues hit $11.8 million, a 310% increase from the year-ago quarter. Further, SG&A expenses grew to their highest ever quarterly level at $10.6 million, a sequential increase of 51% and an even higher year-over-year increase of 77%. This meant cash outflows from operations was high at $28.8 million, a decline from $46.4 million in the previous quarter. The company took several actions during the quarter to reduce its cash spend from a 25% headcount reduction at its production plant, the withdrawal of the USPS lawsuit to save on legal fees, and a reduction in third-party consulting spend.
With Workhorse's market cap currently standing at $822 million, it is somewhat difficult to establish whether it is valued appropriately. The company is aggressively pre-revenue and has not provided any guidance for its future years. Workhorse might look like a great play when compared to other high flying pre-revenue EV companies trading at multi-billion dollar valuations, but its investment story is a lot more convoluted and difficult to establish.
What Does The Future Hold For This Failing EV Story?
Workhorse was able to convert $172.5 million of debt into equity during the quarter and maintained cash and equivalents at $230.4 million. These are both positive as they shore up its balance sheet, critically buying more time for the company to get its act together. The company might find it difficult to turn around the tide with its cash and equivalents dwindling and its quarterly cash burn still running hot despite strong measures to reduce it. The most obvious next step is getting its C-1000 out there and ramping sales to commercial customers looking to decarbonise their operations on the back of ESG commitments.
Workhorse, for now, seems like a company without a product. It has no vision or concrete plans to ride the coming wave of electrification over the next decade. The company's bulls would be right to point to the intense level of liquidity moving around the EV sector as a positive. Workhorse only has to marginally improve its investment story to attract a share of this to render reports of demise to be shortsighted.
The company's common shares continue to be one to be avoided for investors as there is far too much uncertainty. Workhorse is yet to display product-market fit and has stumbled from setbacks to setbacks. To still be pre-revenue more than eleven years since becoming a public company and six years since rebranding as Workhorse displays a significant lack of urgency. An odd trait that renders the company uninvestable at the present time.
This article was written by
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