I'm not sure exactly where the expression originates from, but 'we've got our work cut out for us' means that there is a lot of work to be done.
'Down and out' means that one has completely failed, that they are out of luck and that there are no options left for them. Here with 'We're down, but we're far from out' he is saying that they are down, or that they have lost something, but that there are still options left for them and that they don't have to give up.
I hope this helps!
Student or Learner