Q2 2020 Workhorse Group Inc Earnings Call
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Once again, please continue to stand by the presentation will begin momentarily.
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Ladies and gentlemen, greetings and welcome to work horse groups second quarter Twentytwenty Investor Conference call.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce <unk> workforce, Chief operating officer Dr., Robert will listen. Thank you Dr. Wilson you may begin.
Thank you operator, and good morning, everyone. We appreciate your taking the time to join us for coal.
For the market opened we issued a press release with our second quarter results for the period ended June Thirtyth 2020, a copy of which is in the Investor Relations section number website.
We also released our quarterly forms 10-Q.
And a few moments I'm going to turn the call over to our CFO, Steve Schrader, who will walk us through our financial results for the quarter.
After that our C.O. Wayne Hughes will provide an update on the businesses as well as provided an outlook for the remainder of the year.
Well then here from Jordan, Braeburn, who heads up our aerospace operations for an update on that part of the business.
Before we turn it over to question.
Before I begin I wanted 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 risks factors that may cause actual results could differ materially from the content of our forward looking statements.
2019 form 10-K, and other periodic filings on file with the FCC provide further detail about the risk factors related to our business.
With that I would like to turn the call over to our CFO, Steve Schrader see.
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 ever operations for the quarter. Additionally, as Rob just mentioned our form 10-Q was also filed today.
And then going through both materials to get more color on some of the information being discussed today.
Sure a financial results for the second quarter ended June Thirtyth 2020.
As many of you have been falling workforce are aware and as we announced the press release recently, our first two C series trucks were delivered in July two writer.
We think commencement of delivery helps to explain the lack a meaningful revenue in the second quarter.
In addition to be clear expectations should be at the vast majority over three to 400 vehicle production target you manufactured and delivered by the end to the fourth quarter. This year.
Now for the second quarter results.
Sales for the second quarter 2020 were corridor that 92000, compared with just 6000, a second quarter 2019.
Cost of goods sold increased to 1.5 million for 930000 in the second quarter 2019.
Increase was primarily driven by increases in labor materials related to cost for the C series production.
Selling general and administrative expenses increased to 3.9 million from 2 million in the same period last year.
The increase in selling general and administrative expenses was due primarily to increases in consulting expense.
Your employee related cost and incentive stock option expenses.
Research and development expenses increased 1.6 million from 1.2 million in the same period in 2019.
Accretion engineering staffing and consulting expenses as related to the design of the C series.
Interest expense decreased by 108.4 million with higher at 24.3 million of expense this quarter compared to an interest expense up 15.9 million from the same period last year.
It should be noted that this significant increase interest expense was almost exclusively due to the change in fair value of our convertible now in the mark to market adjustment for some non dilutive warrants issued to wonder.
These GAAP adjustments, our non cash and primarily dependent on the underlying stuck and when it's a financial instruments.
You large adjustments, where there is all the stock price of 17 at 39 on June Thirtyth compared to $1.81 on March 31st.
Net loss of 131.3 million compared with the net loss at 20.1 million in the second quarter 2019, however, because a large.
Curations in our mark to market accounting for the convertible debenture and some stock warrants operating income or loss will get better indication of operating and cash performance.
Loss from operations were 7 million in this quarter compared to a loss of 4.1 million in second quarter 20 Nike.
And the do 30 2020, we had cash cash equivalents and short term investments a 26.2 million compared to 23.9 million as of December 31st Threeninety.
You may have seen in July that we closed on a 70 million convertible note financing.
In addition, we had many investors exercise warrants were options that were granted or pain in previous financings.
If the cash coming in from those exercises and the financing. We currently have a hydrant by millions of cash available.
We believe this catch all that was to ramp up the production to hit our target level. This year find in next year's operations as well as take us into 2022 before we may need additional financing, excluding any financing needed to respond to any significant increases in manufacturing, resulting from snicket significant orders or contracts.
With that overview completed I will now turn the call retour, a CEO Dwayne Hughes discuss some of our major operational updates.
Provide an outlook for business units for current quarter and for the rest of the year.
Thanks, Dave and thank you, Rob and good morning to everyone on the call. We appreciate you taking the time to join us today.
During the first half of 2020, we have all been dealing with the effects of the Kobin 19 pandemic.
It relates to work horse specifically for most part except for supplier issues in the first quarter and testing facility closings in the second quarter, we've been able to continue towards a ramping up of our production, while maintaining all safety precautions for our employees designing and building vehicles certainly the highly.
Well part of what we do but our C series vehicles also have to past a rigorous standards of federal and state regulators in order to be operated on U.S. Roche to that end, we successfully completed the federal motor vehicle safety standards or Mbss testing and you.
Were also proud to say that our vehicle designs have been validated by the United States Environmental Protection Agency, EPA and the California Air Resources Board noticed carbon workforce is the only American all electric OEM designing and manufacturing last mile delivery vehicles.
To complete all these tests.
An additional benefit to our car zero emission Hebei status is that going forward workforce will now have carbon credit capabilities. This means just throw card, we won't get one and a half kretsch true every vehicle we sell in turn these credits can be sold to other Oems to help me card.
Emission standards at current rates and it's our belief that a typical carbon emission credits can expect to be sold for two to $300 on average well I'm not an immediate contributed contributor to our topline or cash flow as we begin to scale. Our operations. These credits should be reliable and more impactful.
As a new source of revenue overtime EPA issued a certificate of conformity for our three C series, much which technically gives us permission to sell our vehicles and all 50 States. In addition to the EPA C. O C. After going through another significant testing program, we applied for and receive.
Okay, and executive order from car that enables us to sell our vehicles, specifically in the state of California, as well as a 13 other states that followed the stricter, California Air Resources Board standards.
He centrally this means a California has approved production of our model year 2020 via the C 1000, and see 650 without the executive order, we will not be able to sell or placed vehicles in California and 13 other highly populated states. It's a pretty well also allows us to have our vehicles on the California hybrid incentive probably.
<unk> or HBAP, which should provide for a 50000 dollar incentive per truck. After the state of California is expected to appropriate funds later this year.
With respect to production in June we delivered a C series 650 vehicle to electric vehicle fleet solutions will use it in support of their field service and training business.
In July we shipped our to see 1000 vehicles to rider to be used at their service centers and Orange and San Jose, California, as part of the North America rollout writer well placed a first group of workforce see 1000 vehicles through co up a peer to peer trucks sharing probe platform connecting fleet managers to business.
<unk> that are looking to rent vehicles. In addition, workforce electric vehicles will be offered for longer term leases to the writer customer base with service charge and charging capabilities available out of writers 11 facility charge network across California, writer showcasing our trucks.
Will lead to an increase in future orders. We are most excited about our relationship with right.
Speaking of orders in July a Cincinnati based company Eetrex placed an initial order for 20 see 1000 vehicles eetrex as a buyer reseller and financier of trucking solutions for small to medium sized delivery businesses or smbs, the SMB bleed off.
Operator represents an opportunity for additional sales and we're looking forward growing our partnership with another Ohio based organization to improve last mile delivery for everyone pursuing sales agreements with reseller like Eetrex allows workforce to expand our sales our sales reach and take advantage of.
The economies of scale that would otherwise be available through individual transactions.
Let me to another major news item as I'm sure. Many of you have recently heard a few days ago, our strategic partner wards, Tata Motors Corporation announced that it had entered into an agreement with Diamond Peak Holdings Corp. A special purpose acquisition company or spec that would result in LMC, becoming a pay.
Look we listed company on the NASDAQ under the ticker ticker symbol ride.
With the transaction expected to close in the fourth quarter of this year.
Our Satish stated that its insurance and all electric pickup truck is expected to be the first full sized electric pickup truck designed to serve the U.S. commercial fleet market.
What's town also says initial production will begin in 2021 to date LMC has disclosed that it has received over 27000 preorders for the vehicle representing over 1.4 billion a potential revenue.
With respect to our partnership I want to start off by reminding everyone of the details in our current agreement and how that will look after the spec transaction is finalized our IP remains at the heart. The Orrstown insurance several design concepts first introduced an workforces all electric platforms are central to the insurance.
To the endurance desire among awards towns technology differentiator is the integration of hub motor technologies that eliminates the heavy drivetrain engine transmission driveshafts differentials and axles typically used in combustion engine vehicles in exchange for access to this valuable I.
<unk> renegotiated a licensing agreement that would provide workforce with a 10% non dilutive equity stake in LMC. In addition to other considerations subsequent to the spec transaction, we will maintain our approximately 10% ownership of the combined company at closing.
I don't approximate 1.6 billion dollar valuation post transaction close that makes our position worth roughly 160 million.
Additionally, with the $1.4 billion, a preorders already secured as disclosed by LMC large sound also agreed to pay a 1% royalty on the first 200000 vehicles sold plus a 4% Commission on 6000 workforce W 15 preorders that.
For two LMC as part of the IP licensing agreement.
It's worth noting that LMC has agreed to prepay a portion of the license fee and an amount equal to 4.75 million.
This transaction marks a fulfillment of a vision that began in January of 2019, when we first approach general motors about the Warsaw complex.
A large town assembly plant as a 6.2 million square foot facility estimated to be capable of producing as many of 600000 electric vehicles annually.
From the outset, our team and the LMC team I understood the opportunity available.
And recognize the synergies that can be realized infusing our technology.
But production capabilities of the former GM plant the vision of the large town leadership and a commitment of the communities in the voltage valley today.
We are more than excited about our longstanding relationship and look forward to further strengthening our ties with large town team as they finalize this transaction and begin building trucks and 2021.
Finally, I want to next speak about our engineering design and production process. Our engineering team has been working on production plans for the second half a year and we now have in place a final assembly plant and they build schedule for the remainder of 2020 and beyond.
Developed a multi vendor strategy and in particular in multi battery strategy. All major body parts will be built in United States. Our design eliminates traditional multimillion dollar investments in tooling and moulds as well as transportation and cannot accommodate design changes quickly.
We continue to add key personnel in critical areas, including engineering and assembly positions. These additions of quickly provided us with new ideas and plans for improving our design for assembly. The goal of this design for Assembly program is consumed considerably shorten time, thanks to assemble a C series vehicle and deliver.
For our target vehicle production of 300 to 400 units later with a vast majority coming into fourth quarter.
And now I'd like to introduce John Graver, who leads our aerospace group to speak about our ongoing projects John has a long history of military and commercial aviation. He has been the president of multiple public Airlines and has extensive experience in worldwide aircraft operations maintenance and F.
Hey system Certificate John.
Thanks, Duane good morning, everyone.
Aerospace team has made a lot of progress beyond the publicly announced expansion of our last mile delivery patent portfolio and our membership in the small you a b coalition.
During a significant payload for practical distance with a high degree of precision and reliability is not easy but in the second quarter during continuing heavy flight testing our team did that elevating our aircrafts target range payload and endurance.
In April our team participated in a demonstration that Lawrenceville, Virginia with U.P.S. and thrown out in front of government officials with a goal of validating the use of drones for emergency and medical situations. It was a good exercise for the team and our system. We learned a lot one of the things we learn.
We validated the notion that autonomous operations are important, especially in times like these.
Other participants needed three people to operate missions, we flew with one.
Because our horseplay system automatically launches our aircraft from our patented truck stop launching system.
Because our aircraft autonomously flies to the delivery point and from a safe altitude.
Automatically lowers our cargo with the winch and then returns automatically to the truck we only need one person to run the entire mission not free.
We're closing in on the final design of our horse fly 1.0 system and an improved roof system for launching in recovery horse fly from a workforce truck.
I've been involved in Workforces aerospace operations for almost three years now first on the Shutterfly and now with the horse fly team. Let me give you a sense of what horse Sly means and is doing for workforce first last mile transportation is hard.
Space Transportation is harder and integrating the two I would submit even harder yet our team is getting it all dot.
And our fourth year of development. We're of course aerospace has flown life package deliveries hundreds of times in three different states. Our prototype all electric aircraft flights from our all electric delivery van utilizing our patented truck top launch and recovery system.
Our experience has taught us last mile drone delivery standoff, low touch and low cost, but all of that means nothing if you can't sell let it in the marketplace and we found the marketplace requires these core capabilities, we designed for safely and reliably carrying that maybe.
Full payload.
Terry and get a meaningful distance doing that simply and autonomously and doing it seven days a week 365 days a year.
F. <unk> type certification is the only path to scaling meaningful long term commercial revenue operations in the United States and workforce Aerospace is on that path. We've designed our aircraft and support systems to meet the F. a stringent standards to commercial operations.
Certification process takes approximately 12 to 18 months.
We have an expert aerospace team with a deep understanding of the phase process on regulatory requirements and we've teamed with mobile aerospace the leverage their decades of aviation experience and the development of our systems.
Our systems and design include redundant communications and control.
Transport standard structural strength and the range reserve power capabilities that meet regulatory requirements.
The key component to drones success is community acceptance no one wants hundreds of annoying that flying over their homes everyday but very few people care a far aircraft flies over because they won't hear it unless they're looking they won't see it we've designed our aircraft to be quiet quiet and on a pro.
Our patent pending onboard winch system allows us to deliver packages from a 20 feet or more above your backyard or driveway keeping us away from your pets children and plans, we delivered hundreds of packages and understand what communities will and will not accept.
An additional key component of our horse flight system is our patent pending areas software that allow simple precise control of the drone by operators. Various also helps foster customer acceptance by allowing package recipients to opt into delivering choose their own delivery points for packages at their homes excepted.
They are rejecting packages and deliveries in real time.
In areas is more than just delivery managed from trucks. Our system allows last mile delivery from fixed base operators like drugstores post offices and hardware stores as well.
Yeah applications are many and growing.
In summary horse for long term business case, and economics are compelling.
Direct operating costs of the aircraft as less than three cents a mile in when you combine our horse fly aircraft with our C 1000 delivery technology, you cut almost all of the carbon out of the delivery process, while reducing the delivery costs up the 80%.
This is a true step function improvement in terms of cost and efficiency and greenhouse gases.
We're slides integration with our all electric delivery van will allow us to maintain and grow our early leadership position in the last mile space.
And I'll turn it back over to you.
Well done John I appreciate that update I do trust US provide you all at a better picture of what horseplay means to workforce. There are drone operators there our delivery truck Oems workforces both.
In conclusion I'll provide a brief comment as we always do with respect to the U.S. Postal service next generation delivery vehicle program as many of you are well aware under our India Workforces only able to provide information which is already in the public domain.
As has been the case throughout this process any further information or announcements will be issued by the U.S. Postal service. We appreciate your continued interest that we are receiving and will provide updates to the market. As we are able we do not have any updates to share at this time that concludes my prepared remarks. Thank you all for.
Your time. This morning, we look forward to updating you on our progress going forward and we're now ready to open the call for your question operator, please provide the appropriate instructions.
Thank you.
At this time will be conducting the question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we pull for questions.
Our first question is from Craig Irwin of Roth Capital Partners. Please proceed with your question.
Good morning, and thanks for taking my questions. So first thing I'm doing its please update us on backlog stands at the moment is it basically unchanged from the last time, you disclose 1200 units.
And then the writer and Eetrex orders, both very nice.
Beginning with both of these customers can you maybe describe.
The longer term potential you think is it is available with these customers and how should we be thinking about.
Customer orders as far as tempo did they generally start small and build larger and should we be expecting multiple additional orders over the next several months.
Thanks for your question, Craig it's great to have yarn and we appreciate the opportunity to respond there's a couple of things I heard in there in terms of your question. So I'll start with the relationship with companies such as rider and eat electrical vehicle solutions and so on our truly geared at helping us.
Yes, I track orders from all sizes of fleet. So as you can imagine went to the U.P.S. as of the world right. We can garner large scale orders, but when you're thinking about fleets was smaller numbers of vehicles. These guys are allow us to.
Attract not only their attention and get the order, but then compile those orders together. So we have sizable orders coming in from multiple fleet customer simultaneously.
Echoes of course, not just to scale, but to efficiency down the assembly line and so on a beyond out I think your first question was where do we stand with the current backlog we're still in that roughly 1200 unit neighborhood at this point.
Two orders, we sense to writer do did pop you'll start to populate their co op, we as we mentioned in our call.
To that point, we do expect all of these channel partners to help us increase our order quantity in our backlog somewhat significantly significantly I'm clearly as we can operate now in all 50 states due to our regulatory approvals and so on.
Thank you for that so one of the things that was absent from your prepared remarks is a discussion of MPS many of us.
Look at U.P.S. isn't an anchor customer maybe got their most important customer you've done business with today I know all customers are important.
Is there any change or update you can share with us on EWP, yes at this time.
Nothing really except that you know that order still what is out there we are continuing to make sure that the trucks that we do deliver to U.P.S. knock it out of the park. If you will so rather than having the first few vehicles go to them, we're working with their implementation schedule across the different depots, where there go.
Turning to place these vehicles I'm, starting in the California marketplace as we understand it today. So it's really just a function of working directly with U.P.S. in terms of how they are building out their infrastructure.
And making sure that we are on Q2, not just delivered trucks to those depots, but the trucks that we deliver our if you will the best trucks that they've ever receipt.
That's great to hear so last question, if I mean before I jump back in the queue I should start by saying congratulations for getting your first up delivered in the in the June quarter.
I'm forgetting production going can you maybe update us on the tempo of activity and the tempo of deliveries as you are ramping production, what's it going to take.
To get to 200 units a month you guys had been talking about for the fourth calendar quarter.
And do we sort of started off slow and built into that.
Any color here as useful thank you.
Yeah, that's great. Another good question, Craig and you're right, we do start slow and grow into that so even into third quarter as we are identifying.
There are areas that we can bring our own efficiencies and I must say engineer out cost. That's the phase that we're in now by delivering vehicles getting customer response was getting feedback from them.
And helping us understand good we missed something into truck do we have something I'm one of the most valuable things that you're seeing on work and and then combining that with where we can add efficiencies inside our plant and our assembly process. So I would tell you in the third quarter. You know, we're only looking at a handful of vehicles compared to that backlog, but that's.
To lead into what you just said that hundred units a month capability starting in the fourth quarter.
Where we are again well positioned to know that we have delivered.
Not just not just a truck, but a solid quality truck to not just our important customer of U.P.S., but all of our important customers.
Thanks again for taking my questions I'll I'll hop back in the Q.
Great job great. Thank you.
The next question is from Greg Lewis of BTI Ji. Please proceed with your question.
Yes, Thank you and good morning, everybody Duane in Europe prepared comments, you touched a little bit on the California $50000 incentive program.
I'm just kind of curious if you could talk a little bit more about that in terms of you know how many potential vehicles that is how many years, that's going to how many years, that's going to be in place.
You kind of just just trying to get some more color around that I mean, you mentioned you, yes my potentially.
Start off in California, just kinda, if you could walk us through anything there I think would be helpful.
Yeah, that's a great question, Greg Greg and I appreciate it.
I'll start and then if anybody else wants to add more content they can't but in general thinking that this way each fleet is able to.
Put in 200 units in California.
That applies to the 50000 dollar.
The supplemental voucher program, so when you're thinking about the numbers of not just total vehicles that are on the road in California, but the number of fleets operating vehicles in that marketplace, particularly in the last mile delivery segment.
Our vehicles do apply for at least in that thousand tube and 650 Q of range. They both apply for a the fiftyth are applied to the $50000 Maucher at again 200 units per fleet in a calendar year.
Okay. Okay.
Okay, Great and then just one other one for May.
You mentioned also on about LMC potentially you know looking to do a listing later this year clearly you guys have that 10% stake in the company. Steve. This question is probably more for you.
Is there you know it and yes, we can be that can be a long term investment, but but I guess what I'm wondering is is there anything that precludes you precludes workforce from potentially selling that 10% equity stake as LMC becomes a public company in the open market.
Greg Thanks.
Our 8-K basically.
Show that we we have a six months after closing and after the six month time period than we had the ability to sell if we want to.
Okay, Great and then and then just one more for me as it pertains to the U.S.
Postal service contract not not so much about an update on it but I mean, clearly it's a large order.
Right now.
The goal for for the Union facilities to get to 100 units at a certain point in Q4.
Just as we think about you need to work or should should you asked the US you know it should work horse lucky enough to win when some of that contract if not the whole thing how should we thinking about the opportunities.
Or workforce to meet that potential.
Order just given the size of it and clearly it sounds like Lords LMC could be an area.
Where those units get the leverage but I'm just curious.
Yeah, I imagine you don't want to put all your eggs in one basket I'm curious if that if the management team has done any leg work about potential other.
So these were the U.S.P.S. vehicles should they be one.
Potentially get built just given that it's unclear to me about we know there's a lot of trups, what the timing of the deliveries are in just eating realizing there's a lot of moving parts any kind of comments you could give around workforces ability to maybe meet those orders.
Because frankly, that's a question that we get from a lot of investors about.
This potential contract win.
Hey, Greg This is Steve.
As you know, we can't say anything about the post office. So let me let me say it. This way is that Union city I, certainly has the ability and the history that can be a really all any capacity level has done 60000 chassis that they can in its history. So it does have an ability to do that what I will say is that what we will.
Look at is the capital we may have to put in there from a standpoint automate systems and and the cost than we would have to do and we would look at other areas and places that we could you know do actually sub assembly in sub contracting and I think you had mentioned earlier at least purses lordstown and Lord sense a great.
Example of that were at the 6 million square foot facility that we would take a portion of that probably and they could possibly do it at a.
Lower cost than what we could do it for us that's certainly something we would evaluate we might have more to kind of and.
Currently we have been evaluating that and that's been part of our long term strategy at least understanding if.
And when it would be capable, but it goes beyond just the plant itself. It's also the technology. So we mentioned, our IP L.A., Greg and and that licensing agreement one of the things we recognizes our ability to I'll say share components from different suppliers as you might recall the six prototype vehicles.
Is that we delivered to the post all this all used hub motor technology and of course Lordstown Motors endurance product is coming out with hub motor technology itself. So I'm not only can we scale our operation more efficiently, perhaps through lordstown motors, but we can also scale our supply chain more efficiently by sharing.
You know hey quantity of parts that are purchased from the same suppliers and beyond so there's a lot of things that we're looking at as it relates to large Sam, particularly because of our 10% ownership in our IPO away, but also because of the proven performance that plant provides which as you know again similar to Lord or its similar.
So our Union city plant, we have a lot of experienced a lot of capability. There. The question is what becomes the most efficient.
Process and location to ultimately build and deliver any vehicles that we build and deliver going forward and it's not just related to postal service type things.
Perfect. Okay, guys. Thank you very much for the time.
Thank you Greg.
The next question is from Jeff Osborne of Cowen and company. Please proceed with your question.
Hey, good morning.
My questions on my end I was wondering if you could just touch on the do partnership and how that's progressing.
Yeah, I think a this is doing great Jeff. Thanks for the question good to hear your voice again, let me Sixtyv start with the first answer that yeah, I think there's still a strategic partner with that's especially from the infrastructure side and wearing a talks with them quite a bit from a standpoint of going forward. So we view them as the first choice.
Ladies first point infrastructure to our customers and they certainly view us as the first choice of supplying the trucks for their infrastructure I don't think we can speak to other things that are happening right now because they're not publicly available but do it remains a key strategic partner of ours.
Above and beyond infrastructure, Steve points out that's clearly a number one thing but also they can operate if you will within our channel partner World as both a channel partner and side by side with our channel partner. So Duke is among the top of our strategic partners.
Great to hear I, just had a couple other modeling questions just with all the movement on that converts and the warrants.
Can you just update us on what the share count should be in the third quarter. It looks like you had about 74.7 million.
Per the Q and then another 24 and change there were anti dilutive from options and warrants, so where should that be given the warrants are fully exercised.
Yes, I think the very first page of the.
10-K every release today I think has 105 million shares outstanding.
Got it.
And then how do we think about the the Opex run rate you mentioned some.
Expenses for gearing up.
For the C. 1000 launch you then have things sequentially down in SGN, a and R&D is that the run rate that you had around 4 million and wanted to half for R&D and for fresh DNA a a good baseline.
For the second half for or no.
Yeah, Jeff for the second half I think it's a good run rate to think about five to 6 million for a run rate for nine production related.
Adams extent that we are buying supplies and components to get a five day I'm in the fourth quarter, obviously, we're going to be paying more for that.
Got it and then my last question was just on the in past calls you alluded to doing a $40 million credit line is that something you're still working on or does the 70 million convert or take away the need for that and just wasn't sure. What's your working capital needs would be especially as you enter the first half of next year.
Yeah, I think the $70 million, a convert plus the exercise of the warrants and options that were out there put us in a situation, where we have 105 million of cash right now so unless there is a big.
Order, a big contract, possibly the ability to kind of maybe lower our cost of capital with things that are existing on our balance sheet.
We're pretty.
Pretty well set stood at 2022 time period.
Got it. Thank you that's all I had.
The next question comes from Mike Shlisky of Dougherty <unk> Co. Your Securities. Please proceed with your question.
Good morning, Thank you.
I wanted to start out with some questions about the admissions growth that you had mentioned earlier.
Kind of curious is there a certain point where those credits.
I have value.
As it is that when California starts to officially require.
I'm pleased to have used or do you start accruing those credits today and then maybe secondly, as part of that question, they're a point.
Well, you think so kind of trading market will develop for those credits.
Yeah, I think it's really my.
Number one thanks, Mike for your question, we appreciate you being online.
And this is Duane I would tell you that those credits are available immediately to us when we start delivering vehicles in that marketplace.
And then also in other marketplaces, as well, who who who create programs for us it's a matter of creating our own you know process in order to I'll say use those those carbon offset credits so setting up relationships with other Oems, who could take advantage of using those carbon offset so.
It's on us, it's our responsibility to to create our own marketplace with the other Oems, but they are available immediately.
To us as we start delivering vehicles to that market now with that said you know for us. It's a function of one and a half credits per vehicle, we deliver and one and a half credits I think we referenced this in our talking points as we're somewhere between a call. It right around $300 I think it's $200 per credit each vehicles worth a credit.
And a half which would calculate the $300 per vehicle.
Okay.
Just a follow up there there are other.
Zero emission companies out there that make all kinds of different vehicles.
Do you think they'll also good credits I'm trying to figure out can people buy their credits from different sources than we'd be able to.
Mark those up if people really need them or mark them down if everyone's got their cut their vehicles on the on the road by those California deadlines.
Yeah, I would say that there's going to be other E. V. Oems are able to have carbon offsets I would tell you. This today. This is our first.
Time, we've had carbon credits available to us.
I think it's based on a class vehicle, it's all electric vehicle and so on as you get into larger scale vehicles in the past the larger classes. The heavier class vehicles I don't believe were available for carbon credits earlier, so I think they're starting to make that available and I think that's one of the reasons why you see our our operator.
280 into class a vehicle we're into now have available carbon credits.
Okay.
Great color I also wanted to touch on maybe your exit production rate for the year and possibly sort of the bottom.
Range for 2021 as far as what you might start the year on production.
No you want to get you want to.
Hundred vehicles, a month for the fourth quarter was there any sense as to where you might start the quarter on where you might in the quarter, whether the ending exit rate is kind of oh, good place to start which ones when one.
Yeah. This is Rob will have some really.
The ramp starts from here and goes up and what we're really looking at is.
Fourth quarter [noise].
To do a.
100 month, but you know beginning next year.
Really taking that up.
Huh.
A good bit pass that you know 150 up to 200 a month.
The market allows us weighted said earlier, there's a number of fleets that are now seen.
These as.
Obviously green obviously, good for the environment, but bottom line is there a less expensive to operate and a better for the drivers so.
I think some are a little tepid out there.
To wait.
Friday's out, but we're really seeing quite a huge interest by fleets and we'll see that production increased.
Next year and Mike. This is Steve I think what I would say two is.
So I like Rob said, we're trying to get to the 100 a month in the fourth quarter. You have thought about 2021 I think the next goals once we achieve that and do it on a regular basis me quality products, but then be 150, a month and 200 a month, we can't give you a guidance on that yet in 2021 is that when we would get there.
Standpoint of what month, but that's certainly the next two goals and I think when we get to the 200 amount will be gross margin.
Probably hit our targets now getting gross margin positive. It's always the first step from a standpoint of anybody it's mass producing for the first time.
And going from in lot of cases, putting a selling equipment in our case was doing R&D I'm, so but again our goal is to eventually get too.
That 15 to 20 day.
Got it great. Thanks for that and just to confirm all those all your 50 fitted gross margin EBITDA breakeven.
Targeting comments those are still valid, but the same doesn't levels going forward.
We do believe that when we get that 200 amount that will be at our production our gross margin targets, the like 15% to 20% but.
I I say that and all this it's sitting here too we have to do it first we have to do 100 am on first and we've kind of see where that goes. So you know you don't get credit until you do it so.
Got it maybe just one last one for me.
Are you kind of touched on your previous answer here, but curious as to what's the.
What's the level of order inquiries that you're getting a maybe this quarter this past quarter versus the prior quarter.
And you get a sense that there's been any issue.
Due to Coburn 19 with posted on the able to get.
Test drive in do you think once there's other at 16 or its or where the virus gets a little bit less of an impact on our economy, just see a lot more test drives after that point versus versus the current time.
I think the virus has definitely impacted us from a standpoint of like you said orders.
Because yeah customers want to see him on the road the or am I touched family my feeling they want to drive them I think from that standpoint, it's probably been slow I think as soon as we started delivering more orders out there that the orders will come and we certainly anticipate higher orders this year and buy and by the end of the year. So we have Oh, we're pretty confident that and.
We'll go forward and see what happens.
That's great color I'll pass the lump thanks, so much.
Thanks, Mike.
The next question is from Pavel Molchanov of Raymond James. Please proceed with your question.
Thanks for taking the question lots of discussion today about the.
Domestic opportunities, but of course on the other side of the Atlantic We're seeing the European Green deal in the European claim that line, if anything a faster push for electrification and I'm curious what kind of conversations you maybe happening with either prospective customers or perspective manufacturing partners.
Within the U.
[noise]. This is dwayne I'll start with that and then I'll, let anybody else jump in but yes, we get I'm a bit of outreach from you know on the other side of the pond, if you will as well as over here, whether it's in Brazil are all the way into Canada, and so and so part of that as a homologation process that we are.
I'm prepared to handle and go through.
The second part is really the size of the vehicle in the platform. As you know we're focused on our C 1000, which is a 1000 cube size vehicle and when you think of the traditional parcel delivery guys here in the size of their vehicles. There are a bit larger than what is used over in the European theater. So we do have.
You know our 450 solution in smaller than that so we are looking at how we determine the appropriate or the rightsize vehicle. If you will for that market place to be able to open it up to us.
On the on the platform level that matters to them.
Rob you want to add yes, so so our vehicle.
Can be sold into Canada was designed that way.
We we announced before we're seeking a refrigerated vehicles and there's a large U.S. and.
Market in the UK for that and we've had.
I had some preliminary talks.
In the UK Scottish government as well so we want to make sure that you know we roll outs in a systematic way with quality.
There's there's a large demand for this we're trying to.
The do it judiciously and economically.
Yeah sure you guys also touched on the.
Kind of precautions and social distancing.
But you have implemented to keep our workforce safe on.
Can you just talk about.
How are the kind of.
The co manufacturing or labor process has changed in the last 100 days given the big new normal that we're living in.
Yeah. That's a great question you know it's.
What we've really looked at.
Maintain a social distancing and a lot of that has come down to.
Some sub assemblies limiting the number of people that group together.
At final Assembly.
And then all the face masks the phase shields.
Yes, all the pp that we do.
And as much as every manufacturer.
Keep the the factory say lets up spending about across multiple shifts as well. So we don't have the same number of people working at the same station some things are.
And John you might want to touch on that from a horse fly perspective in the aerospace area.
And a lot of time thinking about of course.
How to work apart.
And our aircraft is designed on our products are designed to facilitate one or two people involved in something so social distancing is no problem, we emphasize ppt to everybody when you get into the guidance, it's pretty clear and we're very respectful of the notion that we.
Use P.P.E., we socially this since we do the hand washing them, we separate our people at work there works pretty well for us so far and maybe talk just a little bit about in the new truck configuration with the horse fly to.
And for infrared isn't or ultraviolet yes. So so you know one of the recognition going forward with last mile delivery.
And we do have a preliminary.
Patent on this but it's a using EUV you see.
In the cargo area and the drivers area unoccupied too.
Kill bacteria put down some of the.
Dangers of covert another contagious diseases.
Thanks very much.
The next question is from Chris South or a B. Riley FBR. Please proceed with your question.
Hey, guys. Thanks for taking my question, so what the for shipments going to rider I'm. Just curious between then you.
As part of the mix. This year can you talk about what the expectations are on that's sort of.
With the larger customer versus the tale of smaller fleet through the channels like rider and he trucks and what the expectations were going to be going forward.
Yes, I think for the most part will be kind of spreading around to all the customers. This year part of its working with them and when they want to receive them, where they want to get a Matt for example, if they want them in California, the even though were part of the H. Vik the H. bid on list and eligible for the rebates that state hasn't funded the program.
Ed and probably won't for the fourth quarter. So again, if you would want trucks in California, you'd probably have to wait for the fourth quarter. Two so again I think each of the customers we already talked about Oregon, beginning trucks. This year and it's just a matter of working with them as to when they will get them.
Understood. So can you talk a bit about like what percent of vehicles. We thought we'd previously you can be going into California, I will watch eligibility change that geographic mix or you know we've done already kind of a big part of it with the expectation that would be.
Potentially there.
Oh, Yeah. This is Duane I would tell you right now in our current backlog, we view roughly looking at 10% to 15% of the initial deliveries. If you will be initial backlog going into California, and probably increasing pass that pretty quickly, but based on where we currently believe these vehicles.
Will you be placed within our current customer base roughly 15% when do you want to California.
Understood. That's helpful. Thanks, guys.
Thank you good question.
At this time this concludes the company's question and answer session.
If your question was not taken you may contact core courses Investor relations team at WK H S at Gateway <unk>, our dot com.
I'd now like to turn the call back over to Mr. Hughes for closing remarks.
Well, thank you for joining us on our call today, we especially want to thank our employees our partners and clearly our investors for their support. We appreciate your continued interest in workforce and we look forward to updating you on our next call operator.
Thank you for joining us today for work horse groups second quarter Twentytwenty earnings Conference call you may now disconnect.
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