Workhorse Group Inc. (NASDAQ:WKHS), a manufacturer of electric vehicles and utility vehicles, has entered into a material definitive agreement and created a direct financial obligation as disclosed in the company's recent 8-K filing with the Securities and Exchange Commission.
On Wednesday, Workhorse Group issued a $2 million senior secured convertible note to an institutional investor without the issuance of accompanying warrants, which the investor waived.
This transaction is part of a securities purchase agreement dated March 15, 2024, which allowed for multiple tranches of funding through senior secured convertible notes and warrants to purchase common stock. The $2 million note, referred to as the Seventh Additional Note, bears an original issue discount of 12.5%, resulting in net proceeds of $1.75 million before fees and expenses.
The Seventh Additional Note carries a 9.0% annual interest rate, payable quarterly, and can be paid in cash or in-kind at the company's discretion. In the event of a default, the interest rate increases to 18.0%. The note matures one year from the issuance date, with an option for extension under certain conditions.
Investors can convert the note into Workhorse common stock at a conversion price that is subject to certain conditions and limitations, including a beneficial ownership cap of 9.99%. The conversion price is based on the lower of a fixed reference price or a variable price tied to the stock's trading performance, subject to adjustments.
As of the day before the closing date, there was $5.85 million outstanding under the notes issued under the securities purchase agreement. The agreement allows for additional closings of up to $103.5 million in aggregate principal amount of additional notes.
The Seventh Additional Note is secured by a guarantee from Workhorse's subsidiaries and is senior to other unsecured indebtedness, with certain limitations. The company must also maintain a minimum liquidity level, which varies depending on whether a specific sale leaseback transaction has been completed.
In other recent news, Workhorse Group, a commercial electric vehicle company, has been in the headlines due to a series of strategic developments and financial challenges. TD Cowen has adjusted its outlook on Workhorse by increasing its price target to $1.25 from $0.25, while maintaining a Hold rating on the stock.
This follows the announcement of significant agreements, including a three-year FedEx (NYSE:FDX) Master Framework Agreement and a General Service Administration contract, expected to expand the company's market reach.
However, Workhorse continues to face financial hurdles, with reported sales of $2.5 million and a low cash reserve of $3.2 million. Despite these challenges, the company has made progress in product certification, with its 208-inch W56 step-van achieving important certifications.
Workhorse Group has also secured additional funding, a crucial aspect for its ongoing operations. The company has secured an additional $1.2 million through a senior secured convertible note, along with another $3.4 million in funding through a similar agreement. Workhorse Group has further managed to secure $2.6 million via a securities purchase agreement with an institutional investor.
The company has also been warned by the Nasdaq Stock Market about potential delisting due to its stock trading below the $1.00 threshold for 30 consecutive days. The company has until March 31, 2025, to regain compliance. In other developments, Workhorse Group reported the completion and sale of 15 W56 step vans, marking a significant operational milestone.
InvestingPro Insights
Workhorse Group's recent $2 million convertible note issuance reflects the company's ongoing need for capital, which is underscored by several InvestingPro metrics and tips. As of the last twelve months ending Q3 2024, Workhorse reported revenue of just $9.1 million, with a concerning revenue decline of 25.03%. This aligns with the InvestingPro Tip that analysts anticipate a sales decline in the current year.
The company's financial health appears precarious, as evidenced by its negative gross profit margin of -333.34% and operating income margin of -1018.74%. These figures support the InvestingPro Tip that Workhorse "suffers from weak gross profit margins" and is "quickly burning through cash." The recent convertible note issuance may be a necessary step to address these financial challenges.
Despite these headwinds, Workhorse's stock has shown strong returns over the last month and three months, with price total returns of 31.35% and 37.46% respectively. However, investors should note that the stock price is still only at 12.19% of its 52-week high, indicating significant volatility and downside risk.
For a more comprehensive analysis, InvestingPro offers 17 additional tips for Workhorse Group, providing deeper insights into the company's financial situation and market performance.
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