Workhorse Group Reports Third Quarter 2019 Results

Third Quarter and Recent Operational Highlights

• November 2019: Signed Intellectual Property Licensing Agreement (IPLA) with Lordstown Motors Corp. (LMC), a private corporate entity founded by former Workhorse CEO Steve Burns.
• Agreement finalized in connection with General Motors (GM) Lordstown manufacturing facility acquisition announced on November 7, 2019.
• Under the IPLA, Workhorse is granting LMC a three-year exclusive license of certain IP relating to the Company’s W-15 electric pickup truck in exchange for an initial equity stake of 10% in LMC, which will be anti-dilutive for two years.
• Workhorse is entitled to a license fee equal to 1% of the gross sales price of each LMC truck sold, up to the first 200,000 units.
• LMC has agreed to pre-pay a portion of the license fee in an amount equal to 1% of the aggregate debt and equity commitments LMC intends to raise.
• Once the pre-payment has been amortized over actual production, LMC will pay on a per unit shipped basis up to the 200,000 unit cap.
• Workhorse will also receive an additional 4% commission on the gross sales price of trucks sold which fulfull the 6,000 existing pre-orders for the W-15 transferred from the Company to LMC.
• October 2019: Partnered with Unmanned Systems Operations Group, Inc. (USOG) to launch an initial pilot drone delivery program in the San Diego area with the goal of pursuing additional programs for healthcare providers, pharmacies, and specialized medical courier services using Workhorse’s HorseFly™ technology.
• October 2019: Entered into an Asset Purchase Agreement with aerospace and defense company Moog for the sale of the Company’s SureFly^TM electric helicopter for a cash purchase price of $4 million dollars as well as formed a joint venture (JV) involving the Company’s HorseFly last-mile drone delivery system.
• June 2019: Secured $25 million in financing from a private group of institutional investors, the proceeds of which will be used for general working capital and research and development, allowing the company to focus on finalizing the R&D associated with the N-GEN followed by production of its existing contracted backlog.
• April 2019: Entered an alliance with Duke Energy. The alliance will help reduce the overall costs of fleet electrification and accelerate the adoption of electric vehicles into commercial and government fleets. Through the alliance, Duke plans to offer eFleet solutions to existing and future Workhorse customers. Potential offerings include single-point management and financing of behind-the-meter infrastructure, which is necessary to support depot-wide electrification; vehicle financing/battery management programs; and solar and energy storage and other distributed energy resources.
• February 2019: Duane Hughes announced as Chief Executive Officer to further support company’s successful evolution into full scale production. Previously, Mr. Hughes had served as Workhorse President and Chief Operating Officer.
• February 2019: Robert Willison, PhD, engineering veteran and EV industry expert, appointed as Chief Operating Officer to lead company’s transition into manufacturing.
• December 2018: Secured $35 million financing from Marathon Asset Management.

Management Commentary
“In the third quarter we continued to make considerable progress toward our goal of achieving initial production with our C^Series last-mile electric delivery vehicles,” said Workhorse CEO Duane Hughes. “While we are laser-focused on achieving that near-term goal, we are also taking definitive steps, through strategic partnerships and licensing of our IP portfolio, that have us positioned for long-term sustainability and growth.  More specifically, through our recently announced IPLA with Lordstown Motors Corp., we have successfully acquired non-dilutive equity with the added potential for meaningful additional revenue streams through licensing, royalties, and engineering services from LMC. Having an affiliated company in LMC, with their level of automotive production capacity, affords Workhorse a footprint unrivaled in commercial electric truck manufacturing. Looking ahead, we remain confident in our ability to begin initial production during the current calendar year with a sequential ramp in production, and delivery, starting in 2020. Put together, Workhorse occupies its strongest position to-date, both operationally and financially.”

Third Quarter 2019 Financial Results
Sales for the third quarter of 2019 were recorded at $4,000, down from $11,000 in the third quarter of 2018. The decrease in sales was primarily due to a decrease in volume of trucks delivered partially offset by improved pricing in 2019.

Selling, general and administrative expenses decreased 24% to $2.6 million from $3.4 million in the same period last year. The decrease in selling, general and administrative expenses was primarily due to decreased spending in areas such as marketing as well as decreases in other employee-related costs.

Research and development expenses increased 13% to $1.6 million from $1.4 million in the third quarter of 2018. The increase in research and development expenses was due primarily to increased spending on prototype development, which was partially offset by lower consulting costs.

Total operating expenses decreased 13% to $4.2 million from $4.8 million in the same period last year. The decrease in total operating expenses was due to the lower SG&A spend previously mentioned, which was offset by the higher R&D spend also just mentioned.

Net loss in the third quarter was $11.5 million, compared with a net loss of $5.5 million in the third quarter of 2018. The greater net loss was due to higher interest expense in the third quarter of 2019 compared to the third quarter of 2018. Interest expense in the current year period included a $4.0 million mark-to-market adjustment compared to a $(1.5) million mark-to-market adjustment in 2018 for warrants issued to lenders as well as a higher debt load in Q3 2019.

As of September 30, 2019, the company had cash, cash equivalents and short-term investments of $9.3 million compared to $1.5 million as of December 31, 2018.

Conference Call
Workhorse management will hold a conference call today (November 8, 2019) at 10:00 a.m. Eastern time (7:00 a.m. Pacific time) to discuss these results.

Workhorse management will host the presentation, followed by a question and answer period.

U.S. dial-in: 877-407-8289

International dial-in: 201-689-8341

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 949-574-3860.