Workhorse Group, Inc. (WKHS) Q4 2020 Earnings Call Transcript

Workhorse Group, Inc.  (NASDAQ: WKHS) Q4 2020 earnings call dated Mar. 01, 2021

Corporate Participants:

Robert Willison — Chief Operating Officer

Steve Schrader — Chief Financial Officer

Duane Hughes — Chief Executive Officer and President

Analysts:

Gregory Lewis — BTIG — Analyst

Colin Rusch — Oppenheimer — Analyst

Craig Irwin — ROTH Capital Partners — Analyst

Michael Shlisky — Colliers Securities — Analyst

Jeffrey Osborne — Cowen & Co — Analyst

Craig Shere — Tuohy Brothers — Analyst

Presentation:

Operator

Ladies and gentlemen, greetings and welcome to Workhorse Group’s Fourth Quarter and Full Year 2020 Investor Conference Call. As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Workhorse’s Chief Operating Officer, Dr. Rob Willison. Thank you, Dr. Willison, you may begin.

Robert Willison — Chief Operating Officer

Thank you, operator and good morning everyone. We appreciate you taking the time to join us for our call. Before the market opened, we issued a press release with all our results for the fourth quarter and for the year ended December 31, 2020, a copy of which is in the Investor Relations section of our website. We also released our Form 10-K this morning.

I’m going to turn the call over to our CFO, Steve Schrader in a few moments and Steve will walk us through our financial results for the quarter and for the full year. After that, our CEO, Duane Hughes will give you an update on our business and provide an outlook for the year ahead.

But before we begin, I want to call your attention to our Safe Harbor provision for forward-looking statements that is posted on our website and as part of our quarterly update. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our 2020 Form 10-K and other periodic filings on file with the SEC provide further detail about the risk factors related to our business.

And with that, I would like to turn the call over to our CFO, Steve Schrader. Steve?

Steve Schrader — Chief Financial Officer

Thanks, Rob, and thank you to all who are joining us for today’s call. This morning we issued a press release which discusses the results of our operations for the quarter. Additionally, as Rob just mentioned, our Form 10-K was also filed today. I recommend you going through both materials to get more color on some of the information being discussed today.

Now to our financial results for the fourth quarter and full year ended December 31, 2020. Sales for the fourth quarter of 2020 recorded at $652,000 compared with $3,000 in the fourth quarter of 2019. For the full year, sales were $1.4 million compared to $377,000 in 2019. Increase in sales for both the quarter and the year was due to a higher volume of trucks produced and delivered.

Cost of goods sold increased to $7 million from $2.1 million in the fourth quarter of 2019. For the full year, cost of goods sold was $13.1 million compared to $5.8 million in 2019. The increase was primarily due to a higher volume of trucks produced, as well as increased production payroll and warranty expenses.

Selling, general and administrative expenses increased to $4.7 million from $3.6 million in the same period last year. The increase was attributable to higher incentive stock compensation and consulting costs. For the full year, SG&A expenses were $20.2 million compared to $10.2 million in 2019. The increase in SG&A expenses was attributable to higher consulting costs and employee compensation.

Research and development expenses were $4 million which was consistent from $4 million in the same period last year. For the full year, R&D expenses were $9.2 million compared to $8.2 million in 2019. The increase in R&D expenses for the full year was due to contract labor increases and prototype development expenses.

Other income increased to $322.2 million from $15.8 million in the fourth quarter of 2019. For the year, Other income increased to $323.1 million from $15.8 million in 2019. The increase was primarily related to an increase in the fair value of our investment in Lordstown Motors, which was valued at $330 million on December 31, 2020.

Interest expense net decreased to $4.9 million in the fourth quarter compared to $5.6 million from the same period last year. The decrease in interest expenses was primarily related to the decrease in the fair value of the company’s convertible notes. For the full year, interest expense, net was $190.5 million compared to $29.1 million in 2019. The increase was primarily related to a non-cash change in fair value of the company’s convertible notes as a result of an increase in stock price throughout the course of 2020.

Net income in Q4, 2020, was $280.5 million compared with a net income of $655,000 in the fourth quarter of 2019. For the full year, we had net income of $69.8 million compared to a net loss of $37.2 million in 2019. While our increased production efforts will likely cause our go-forward quarterly results to fluctuate, we look to build a long-term economically environmental sustainable organization.

As of today’s call, we have approximately $250 million in cash on our balance sheet. Over the course of 12 months, Workhorse’s finance team has executed various agreements to strengthen our balance sheet. Through several capital raises, we have been able to improve our liquidity. This capital infusion represents a greater total amount than our combined fundraising efforts since inception, which speaks to the progress we made over the years, translating to market acceptance and also provides us with the stability and resources to execute on our long-term production goals.

While we will continue to focus on building trucks to meet our backlog of orders, we will also evaluate the most efficient and responsible fundraising opportunities to support this mission.

This year we increased our Investor Relations effort by conducting over 200 one-on-one meetings and taking part in six investor conferences and totaled more than 800 attendees from institutional firms. This is the first time we’ve concentrated our Investor Relations beyond equity dealerships [Phonetic].

That completes my financial overview. I’ll now turn the call over to Duane to discuss operations and outlook. Duane?

Duane Hughes — Chief Executive Officer and President

Thanks, Steve, and good morning to everyone on the call. We appreciate you taking the time to join us today.

To start, I’d like to take a minute to directly address something that’s been top of mind for us, as well as many of you listening today. I’m speaking, of course, about the United States Postal Service Next Generation Delivery Vehicle or USPS NGDV program. As many of you are well aware, last Tuesday, the postal service issued a press release announcing that it made an award under the NGDV contract to a competing finalist. This was not the result we had anticipated or hoped for and we appreciate the interest of the many stakeholders who have reached out to better understand the decision-making process, as well as any potential next steps.

What I am able to share with you today is that we have requested, pursuant to the publicly-provided bid process rules, additional information from the U.S. Postal Service and have scheduled a face-to-face meeting with the postal Service on March 3. We understand that many people want answers and information in a timely manner and we will continue to work with the postal service according to the terms of our engagement as we move forward. To be clear, we intend to explore all avenues that are available to us. We appreciate your patience in the meantime as we allow this process to work through its proper course.

Now I’d like to get into updates from our operations, beginning with a brief look back this past year. The past 12 months have been a remarkable period for our company and for the world at large. Let me highlight a few items we have been keenly focused on in 2020. We raised $270 million in capital, transforming our balance sheet and giving us the capital to build the trucks in our backlog. We made significant improvements and additions to our leadership team; our Board of Directors and our overall headcount to support production. We achieved sought-after and required certifications with both federal and state regulators, ensuring that our vehicles can be sold in the U.S. and now Canada.

Production readiness; we announced major strategic partnerships designed to expand our production capabilities and sales reach by adding boots on the ground with consultants, proven advisors and full-time employees to achieve our goals. We announced several new customer agreements, allowing us to increase our backlog seven fold over the last year.

We made tremendous progress with our HorseFly autonomous delivery drone and participated in test deliveries with UPS and others that will ultimately impact the way we deliver packages, medical supplies, and other goods in our new more distanced world. We were approved for the rigorous FAA Type Certification process.

Needless to say, it’s been an incredible year for us and I’m both proud and grateful for the efforts of our employees who continue to dedicate themselves to our mission of changing last-mile delivery even in the face of a pandemic.