Q3 2020 Workhorse Group Inc Earnings Call
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Ladies and gentlemen, greetings and welcome to the workforce groups third quarter 2020 Investor Conference call.
A reminder, this conference is being recorded its now my pleasure to introduce your host workforce Chief operating officer, Dr. Rob will listen. Thank you you may begin.
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Hi, good morning, everyone.
We appreciate your taking the time to join us for our call before the market open we issued a press release with our results for the third quarter that ended September Thirtyth 2020.
A copy of which is in the Investor Relations section of our website.
We also released our quarterly form 10-Q.
A few more words I'm going to turn the call over to our CEO Dwayne Hughes, who will provide an update on our business as well as an outlook for the remainder of the year and 2021.
He will then hand, the call to our CFO, Steve Schrader, who will walk us through our financial results for the quarter.
After that we will turn it over for questions.
Before we begin I want to call your attention to our safe Harbor provision for forward looking statements as 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 2019 form 10-K, and other periodic filings on file with the FCC provide further detail about the risk factors relating to our business.
And with that I would like to turn the call over to our CEO Wayne Hughes fine.
Thanks, Rob and good morning to everyone on the call. We appreciate you taking the time to join us today.
I'll begin first with an update on sales orders, let me start with the order we announced this morning. They 500 truck order from Pritchard Auto companies. Richard is 107 year old Premier automotive called me, who sells more than 30000 medium duty trucks annually across the United States Richard is using a tawdry capital.
America is our inventory financing or this is exactly what we envisioned and anticipated we teamed up with Hitachi as our boots on the ground with their dealer network connections.
I thought you will be assisting work horse in developing a national dealer network and will support our sales what vehicle financing options for both dealers and fleet customers, including dealer floor plan programs.
As a well known and respected player in the commercial leasing and finance industry. We believe Hitachi can help drive customer orders, even more quickly than anticipated. We're also looking forward to benefiting from their manufacturing expertise to further increase our channel sales capacity.
A bit more on our Hitachi partnership as part of an overall production assessment completed by Hitachi. They also recently conducted a dealer survey and the results could not have been more promising for each of these and workforce in particular 47 dealers in several high easy adoption stage responded to the Hitachi.
The survey a high 43% overall response rate was 83% of that group, indicating an interest in becoming a workforce dealer. These dealers already have a strong interest in placing orders 84% of the dealers customers are already asking about purchasing easy.
Top three reasons for their interest our social responsibility reduced cost of ownership and new technology.
It was 47 dealers. They also already indicated I collected interest and purchase orders in a range from 300 to 500 vehicles.
Next Hitachi has provided an assessment of our manufacturing operating and supply chain capabilities and we are now preparing to implement their recommendations. So we can benchmark our operations against best in class standards, Hitachi has invaluable expertise and easy technology Smart factory automation and good.
Little technologies that will certainly help maximize our production efforts.
During the quarter.
We also had purchase orders come from fluid systems, and Eetrex LLC well these customers individually represent smaller companies. We believe these smaller fleet operators represent a major opportunity for additional sales pursuing sales agreements with resellers allows workforce to expand our sales reach.
And take advantage of economies of scale that would otherwise be unavailable through individual transactions. Our expectation is that these initial purchases will continue to grow overtime as we widen and deepen our distributor networks and further develop our internal sales and external sales channels with our current partners.
Next I'm covering the copy of Cove at 19, and its impact on workforce I suspect. We are all aware that the U.S. cases of COVID-19 [laughter] a fourth straight daily record. We at work horse. Unfortunately find ourselves in a COVID-19 hotspot 20 November 4th and fifth our local health Affairs.
<unk> reported a total of nearly 5000, new positive Corona virus cases daily and Ohio and more than 5000 daily in Indiana. These.
These represent the highest number of new cases in a 24 hour period to date, our local Ohio Health Commissioner is expect to elevate the warning system to level purple Ohio's highest warning system level.
Adam This news and the first several weeks of October as part of our previously announced production plan. We added approximately 45 additional personnel to our production operation a vast majority focused on vehicle Assembly production. Shortly after those additions we had our first employee test positive for go the 19 cents.
The first positive test result, we've experienced a severe uptick in coated related absences as a Friday November six we have more than 36% of our production related workers test positive for the virus or at home awaiting test results.
We continue to take all appropriate measures following state and federal guidelines, including self monitoring taking temperatures mask wearing social distancing and routine handwashing.
We continue to add additional measures as we adapt to the ever changing environment. These measures include increasing our professional sterilization and disinfection services as part of our daily Janitorial services throughout the day.
Our policy at work horse, just wondering employee us feeling ill be request the employee be tested and to stay at home until they have test results. If they test positive than they are to remain home for at least 10 days and are no longer experiencing symptoms.
With more than 36% of our production workforce absent for an extended time, we've had a major impact to our manufacturing efforts show. So let me shift gears to production.
In the third quarter, we produced and delivered a handful of new vehicles. We had previously stated we would do these vehicles are collecting real road miles and providing input from customers as well as being used to demonstrate performance and capability to new and existing potential customers.
Next as I mentioned earlier Hitachi has provided an assessment of our manufacturing operating a supply chain capabilities. Weve also introduced Elkann, a global engineering consulting and technical services company into our operations to complement our production efforts and to assist in the implementation and rollout.
Touchy recommendations, we will also use their expertise and setting up a high quality manufacturing environment to reach scale production more quickly previously we projected three to 400 vehicles to be produced by the end of 2020, mostly in the fourth quarter.
Although we will still manufacturing deliver vehicles in Q4, we are unable to provide a target number at this time as we have limited visibility for the following reasons.
First the number of covered cases impacting our production is the biggest of enforcing our production volume change. We are currently experiencing new positive cases on a daily basis, and having more than 36% of our production related staff currently out we must protect our employees health, which requires us to modify the assembly process.
And limit production support and access to our facilities from the third party sources.
Second is the inability of our primary battery supplier to meet our volumes due to capacity issues and Tobin related slowdowns.
Third they delay and plan to assembly staff additions as part of our Q4 production plan to exceed our goals. We had initiated the hiring process with intent to add as many as 200 production related workers to cover multiple production shifts due to the risks associated with the virus spread we've had to.
Delay the hiring for now and for as our implementation of Hitachi is production assessment, we have been advised to implement the assessment recommendation sooner rather than later, enabling us to achieve higher volume higher quality production more quickly what's anticipated additional truck orders by year end as well as in.
To 2021, along with the current delay we are experiencing it is critical to put the newly recommended production systems and processes in place now the majority of the implementation of these systems and processes does not require production related personnel, who had been hit the hardest by code at 19.
Although we've discussed some of our current issues. We view this as only a delay and our progress we've worked through the issues what the supplier and are introducing additional battery options into our supply chain and expect to have supplemental volume additions in the first quarter of 2021 again, we can't predict the covance situation now let alone.
In in 2021, however, if conditions improve and the virus is not a business issue for us or our suppliers going forward. Then we would anticipate producing 1800 units and 2021.
We're certainly encouraged to hear this morning's news that the Pfizer biotech.
Vaccine with 90% effectiveness may be available by the end of the month.
One of the largest certifications and Q3 results during the quarter. We received a number of executive orders certifications from several regulatory bodies, which have helped to expand our sales channels as well as lower financial barriers to entry are C series vehicles like the vehicles from any commercial easy operator.
Have to pass a number of regulatory hurdles.
The state and federal level in order to operate on the U.S. roads.
These certifications, while all meaningful in their own right represent a significant undertaking on the part of the applicant having.
Having completed all requirements for nationwide sales and road readiness, we believe our current standing has us firmly in an early leadership position.
In July and October we received multiple executive orders from the California Air Resources Board risk.
Respectively, designating different C series models as C zero emission vehicles in the state of California.
Combined with our certificate conformity from the EPA in March and our federal Motor vehicle safety standards certification in June we are now the first and only medium duty battery electric vehicle O E M to receive approvals from both the EPA as well as car having received credentials from both regulatory bodies.
Workforce consult C series electric delivery vans and every state throughout the U.S. during the executive order testing process. Our C 1000 extended range achieved an urban driving average of nearly 160 miles and at blended urban highway driving range of 149 miles per.
Charge.
Gaining an executive order was also one of the preliminary requirements in order to be considered for the hybrid and zero emission truck and bus voucher incentive project.
Which we also successfully entered in late July with our eligibility into the program confirmed work horses C series battery electric step vans are eligible for monetary value offers of up to $50000 per vehicle work.
Workforce is also eligible to receive 2.070 emission vehicle credits for these models Ziggy credits can be sold to other Oems to help them meet carbon emission standards, our eligibility for the H. grip program is expected to help dramatically reduced purchasing cost.
For California based potential customers.
October we also received approval from the New York truck Melcher incentive program.
To offer vouchers for our C series battery electric delivery vans of up to $48328.
As Steve will further elaborate on what the recent financings. We've completed we now have additional capital to deploy in the pursuit of product line extensions to that end. We recently passed a team of engineers to work on a prototype C series unit with refrigeration capabilities, while we are still largely in the device.
Relevant phase with this concept, we believe that a viable product.
Prototype will be met with serious demand as it would address one of the more common request, we receive from prospects in the retail food delivery and supermarket supermarket industries.
Moving onto the Lord's town Motors and our strategic partnership on October 26, Mortalities Motors class a shares began trading on the NASDAQ global select market under the ticker symbol ride at this time workforce maintains an approximate 10% ownership of ride where our ownership is valued.
Over $310 million at the current market Price addition.
Additionally, with the 1.4 billion of preorders already secured as disclosed by LMC Lordstown to also agreed to pay 1% royalty on the first 200000 vehicles sold plus a 4% Commission on 6000 workforce preorders that transferred to LMC as part of our IP licensing.
It's worth noting that LMC has agreed to prepay a portion of the license fee in an amount of almost $5 million.
We are excited about lordstown I look forward to further strengthening our tears.
With their team our top I'm, sorry, our ties with their team.
Finally, I would like to share a brief update from our Aerospace Division, which includes our horse slide delivery drought Horsley unmanned aerial system has been designed to meet the federal Aviation administration stringent standards for commercial drone operations and includes a safe reliable multi use.
Aircraft that can deliver parcels carry sensors and cameras and operate autonomy firstly with a high degree of precision assist them success has been validated through real world commercial deliveries with real world delivery customers. These payloads include approximately 80% of most commercial package.
Sizes shapes and weights are aircraft carries a 10 pound payload up to 10 miles during.
During the quarter the FDA accepted our application to enter the EPS Ace type production certification process. It type certificate signifies the airworthiness of a particular category of aircraft. According to IHS manufacturing design. In addition to our joint venture with mode. We began working with aerospace.
Consultant Argus, a premier firm with well proven expertise.
Epay type certification is the only path to scaling meaningful long term commercial revenue operations in the U.S. for context from application to approval. The certification process takes approximately 12 to 24 months I will now turn the call over to Steve to discuss our financial results for the quarter Steve.
Thanks point and thank you to all of our 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 mentioned at the top of the call. Our form 10-Q was also filed today I recommend going through both materials to give more color on some of the information being discussed.
Now to our financial results for the third quarter ended September Thirtyth 2020.
Sales for the third quarter 2020 are recorded at 565000 compared with 4000 in the third quarter of 2019. The increase is primarily driven by an increase in the vehicles produced and delivered.
Cost of goods sold increased 2.8 million from $1.4 million in the third quarter of 2019.
The increase is primarily driven by increases in labor and materials relating to costs for the C series production.
Selling general and administrative expenses increased to 6 million from $2.6 million in the same period last year increase.
The increase is attributable to an increase in consulting expenses higher employee related costs and incentive stock option expenses.
Research and development expenses were 1.6 million, which was in line with our spend in the third quarter of 2019.
Interest expense net was 74.3 million, which was an increase of $68.4 million compared to interest expense net of 5.9 million for the same period last year.
The significant increase in interest expense was almost exclusively due to fair value of the convertible note and loss on its conversion to stock and the loss on the redemption of the series B preferred stock both.
Both of these GAAP adjustments are non cash and we're dependent on the underlying stock components of the financial instruments.
In addition to cleaning up the balance sheet. These transactions also help reduce higher cost of capital from previous financings.
Net loss was 84.1 million compared with a net loss of $11.5 million in the third quarter of 2019 increase.
Increased net loss is due to the increase in interest expense net just noted.
These considerations, we believe operating income would be a better indication of operating cash performance.
Turning income during the period was a loss of $9.8 million compared to a loss of $5.6 million at third quarter between 90.
As of September Thirtyth, 2020, we had cash cash equivalents and short term investments $80.2 million compared to 23.9 million as of December 30, Onest 2019.
Subsequent to year end, we entered into and closed a convertible note financing with a group of institutional.
Institutional lenders or gross proceeds of approximately $200 million.
The notes are convertible into common stock by the horns at 35 29 per share as adjusted prior to closing the mature in four years and bear an interest rate of 4% per year, which rate may be reduced to 2.75% if the company meets certain conditions into.
Interest is payable in quarterly installments and can be paid at the company's option either in cash or subject to certain conditions shares of common stock.
In conjunction with these efforts we entered into a separate agreement with the holder of our prior 4.5% convertible notes exchange. The full 70 million outstanding principal amount of those existing notes for shares of the company's common stock.
Currently we have a cash balance or a 260 million.
With this cash in place we can more quickly advance our production efforts by increasing our supply chain component volumes.
The hiring of more manufacturing employees and automating certain sub assembly processes.
Furthermore, we can all also accelerate our production timeline for new high demand customer products, including a refrigeration truck for grocery applications as well as purpose built class to delivery van allowing us to address one of the fastest growing vehicle markets in the us.
Finally, we also panna focusing additional resources toward an expansion of our drone operations.
We appreciate our financial partners faith in us and their support and further solidifying our leadership and reach in the last mile delivery segment.
That you completed I will now turn the call back to Duane for concluding remarks Duane.
Thanks again stay.
In conclusion I'll provide a brief comment as we always do with respect to our ongoing participation in the U.S Postal services next generation delivery vehicle program as many of you are well aware under our India workforce is 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 the continued interest we receive and we'll provide updates to the market as we are able at this time, we do not have any updates to share.
That concludes my prepared remarks. Thank you for all your time. This morning, we look forward to updating you on our progress moving forward and we're now ready to open the call speed or questions. Operator, please provide the appropriate instructions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.
Before pressing the star key.
Our first question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Thanks, So much guys can you talk about the qualification process and the maturity of that process or does this additional battery suppliers want to get a sense of how much work is left to do at this point.
All I'm sorry, Collyn. This is dwayne I want to clarify the question the qualification process in terms of bringing in additional battery manufacturer.
Battery pack supplier I mean, it sounds like you mean, you're pointing to.
Supplier, having trouble actually delivering.
Perhaps they were looking for.
For the balance of the year, along with call it as the as the the reason or yeah. Some of the slower ramp.
And how how far along you are with this other supplier.
Thats early stages or if there's you know you're pretty much done at this point just wait for that to spool up.
Yes, I would say here's how I'd answer that question one as our current supplier is doing well at finding.
Additional methods to meet our capacity needs first and foremost and we had all year, we have seen a good.
Good success in terms of how their packs are performing in our vehicles both through the certification testing processes as well as what's realized customer share. So we're really pleased with their performance of their path now with that said like with any other supplier. We don't want to be single source. So we had started some time ago with a series of other potential.
Battery packs suppliers of which I think there is at least three or four I'll hand, this over to Rob to give more clarity here, but so this isn't we didn't just experienced this problem and then just get started on that this has been a work in progress. So I believe that you know from from my perspective, we're well into it and we'll have solutions in first quarter 2000.
21, but Rob if you want to add some more detail so.
As all the suppliers, we always keep our.
Year to the ground for emerging technologies, who's who's coming online and they are quite a few.
No battery suppliers that.
Our transitioning from R&D to production so.
For us we look for someone that can meet production and the quality that meet our standards. We've designed our vehicle as we've said before to be modular. So we can accept.
A different different packs and so we work with these suppliers to make sure that we're getting.
That optimum battery at a price point and weights and longevity.
The translates to the warranty.
And so you know as Brad said, we always have a backup supplier. We we've had very good luck with our primary in.
Certainly not a performance issue.
But we're looking because of our volume and increased orders for secondary suppliers.
Great and then let's and move into new applications.
Can you give us a sense of the cycle time going through those those designs and qualification of those designs for production does that should we be thinking about that as kind of an 18 month process or do you think it could be shorter than that it's a longer than that.
Yes, yes.
So where we're like our batteries are designs themselves are very modular. So the 650000. The 1200 the refrigerated versions all use.
The same primary parts.
And.
You know that that filling out of the portfolio. We're doing in a very systematic way, we look for the customers or potential customers in the market.
As mentioned refrigeration is really that next step.
And we've we've worked on that we'll have a prototype coming out but it is in the six eight month.
Timeframe to get initial production when we talk about the class two column.
That's a little longer timeline thats, the 12 to 18 months scenario.
Because that's up I'm, not I don't want to call. It a fresh up design because you know other projects that we've worked on that 10 to lend themselves towards that class two platform and in 2018, we did put a class two unit in.
In California, and did five months' worth of actual real life deliveries as a test environment for that so now that we know that there is a market out there for that vehicle.
Those particular customers want in a vehicle now we see the ability for us to after we get to our initial delivery platforms on this and production numbers on the C series, introducing that class two unit as well.
Okay. Thanks, so much guys.
Thank you.
Thank you. Our next question comes from the line of Greg Lewis with BTG. Please proceed with your question.
Yes, Thank you and good morning, everybody.
Good morning, Greg.
And Rick just that.
As I think about beyond the updated.
2021 production guidance of 1800 vehicles.
As we think about the pace or the cadence of increases is there any kind of way we should be thinking about it whether you whether you want to kind of parse that out versus first half and second half or maybe your year then.
December 21 kind of run rate any kind of way, we should be thinking about that as a kind of.
As you guys bring production.
Hi, Greg This is Steve Yes, I think the way to think about it maybe a couple of milestones. So I think you could look at as well.
Getting to 100 trucks per month by the no no later than the first quarter of 2021, and then getting to 200 trucks a month by no later than the second quarter of 2021, I think that to kind of give you a frame of reference how it ramps up.
Okay, and then just congratulations on on the 500 unit of water and you mentioned also I.
I guess what was that he.
Eetrex and fluid systems any kind of update you can give us on where where backlog is standing around now.
Yes, I think we have a backlog now about 1700 vehicles you now so thats good and like like we mentioned before I touch is out there as our foot soldiers as the writer.
And we believe that we will have more orders.
By the end of the year.
Tim.
And then just knowing.
Knowing that you had the telematics business.
Systems and now the rider trucks have been delivered I guess that was in early July I believe.
Any kind of feedback update have you seen more what's kind of been that the overall.
Feedback and that has has there been more truck orders from rider.
That.
The telematics perspective and understanding.
Understanding proof of performance I would tell you that what we're experiencing today as I think you remember this Greg in the initial trucks that we delivered between 15 and 2017, we averaged about 32 miles per gallon equivalent in those vehicles and of course, we redesigned the vehicle lightweight and all of the things that we've talked about and the vehicles that are.
Out what the customers today are getting I'll say right at or north of 40 miles per gallon equivalent, which just translates to a much stronger ROI as well as total cost of ownership savings.
Now I'm going to segue here and say this to telematics system that we're using today on our trucks, which is all in house written also offers an opportunity for us to commercialize that and actually use that as a recurring revenue stream on rather than providing it as a proof of performance added value scenario to the current trucks. So just as a.
Segue into there I wanted to say that but to your point the vehicles that are out there are performing well we have gotten good feedback interestingly enough one of the first pieces of feedback we got was.
Righter ways or is a couple of those vehicles, they're actually using through there I think it's called their co op business, which is where they lease them to fleets for a short term service needs and where I'm going with that is they actually have a couple of customers outside of the parcel delivery business to lease them for.
Yeah, I'll say unique projects, which is really opening up further opportunities to expand upon who might use. These types of vehicles. As you know typically parcel delivery grocery delivery laundry delivery office supplies. Those are a lot of the kinds of fleets that use these vehicles and we have been seeing an expansion beyond that.
Through that rental model. So we're pretty excited about the different paths we have to go.
Okay, great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed.
Hi, good morning, and thanks for taking my question so.
So can you talk a little bit about this project agreement, whether or not there are commitments to unit deliveries at specific times in 2021, how.
How much of that 500, we expect to be to be actually shipped in 21 or is this much more like yes backlog that you have where you know thousand parts units, but there's all sorts of contingencies and income.
And commitments that need to be met before we see the full units actually delivered.
Yes, Craig this is Steve. So now this is a new unit order, there's not the contingencies that you mentioned before and I think we anticipate they will be delivered in 2021.
Okay excellent and then you know we've had several conversations offline about your battery supplier that you had previously announced before one that.
That actually paid for a few thousand units.
You know I expressed significant reservations about that supplier with you and say no habit supplier its not an issue.
So if you had changed suppliers.
We're changing again or what did it take in the last three months to discover that the all of a sudden you have an issue with your battery supplier, where this has been common knowledge in the market.
Okay. This is Blaine Gray I. Appreciate your question I would tell you this again.
We've been working with other battery suppliers as well and while we have a primary supplier who had a little bit of a hiccup here. They are quickly reacting to that hiccup and we don't expect that to last very long. However.
We.
Being good business people, we don't want to be single sourced on anything. So we have identified multiple battery suppliers and have prioritized inventories of integrating we add backs, whether they are already being shipped or on order from other suppliers and much of the engineering effort is.
Either already done or is being done now and I'll hand that to Robert Craig the other the other issue.
In beginning to sell and supply. These trucks, we we nominally supplied these with four packs each and a number of our potential customers and orders now have switched to six packs. So you're looking at.
From a four to six pack and that's.
Drone.
A little bit of a wrench into the supply in that everybody wants a longer range, which we are able to accommodate.
But from our supplier standpoint, it's it's 50% more.
Capacity that they had to come up with quick so.
It's.
The good news is we have other potential suppliers. Our current suppliers are still online producing at the rate that they can.
And we have choices when a number of coal cars.
So let me just say some of that that's a really good yes, I was going to say that's a really good point, Rob Maida is when we went through the certification processes and we're demonstrating vehicles that get a 160 miles on basically 105 kilowatts.
We're seeing a lot of interest and switching from existing customers to say, let's do the larger pack or the extended range vehicle as opposed to the standard range, which was 105 miles so giving them a 160 mile range versus 105, as something that they switched to which caused another issue.
Great well congratulations on that Pritchett order, that's a nice size order and we look forward to seeing those trucks rolling on the road.
Thanks, Craig Thanks, Greg.
Thank you. Our next question comes from the line of Jeff Osborne with Cowen and company. Please proceed with your question.
Most of them have been addressed but.
I was wondering I might have missed it could you articulate what that the Q3 deliveries were and then maybe just touch on.
In October pre the Cove it spike.
What deliveries were there it was unclear with the timing of all the moving pieces between the Tachy the battery and co that.
What level of production you had Q4 to date.
So in the third quarter, we had seven deliveries five went to Pritchard.
And then two are delivered to rider in the third quarter.
And from a standpoint of pre coven, and all that sort of stuff I think we anticipated hitting our three to 400.
Target you now and both of these kind of came at the same time and changed substantially.
Got it.
So just how do how do we think about the that the allocation towards GPS its thousand or so of your 1700 in backlog.
Doesn't seem like you allocated any to them based on your comment just now.
Given the concerns that investors have had and the short seller report around EPS in particular can you just touch on a relationship and then B why youre not delivering any units to them.
Yes. This is Dwayne Jeff appreciate the question, it's good to talk to you.
Yes, we've got a great relationship with U.P.S. and the real key was part of the fourth quarter deliveries no word identified to go to U.S. and out in San Diego area. If you will.
The foreign year, so part of that's under the voucher program and so on so we still and you know and of course, we notified US you know of our cobot issue and so on in advance.
So that they would have an understanding of what we're doing so now you Pos remains our our premier customer if you will because they've been long along with us for the longest time they've collaborated with us with US on this C series design, they fully understand that using the old I always call. It 19 sixties chassis.
The structure as as an underlying.
You know factor for the old delivery vans does it makes sense for moving forward and designing a vehicle in the future. So we we feel strong where you know we are happy where we are with US we will be delivering new vehicles and the real key for them as EPS.
Deliver us a high quality vehicle over and over again right. We've already been through 345 vehicles with them in the past we.
We understand their business, we understand how they operate a lot of what we learn from their business as what we designed into these vehicles. So the first vehicle, we deliver them we want to hit it out of the park and we want to make sure. It's right. So the vehicles that we've delivered to date are all about understanding their performance do they work for the driver and so on so we're not you.
Using us so much as a guinea pig anymore.
That's great to hear and thanks for the detail there but.
Last question I had was around the competitive dynamics in the space of putting aside capital, which clearly are well capitalized now there's other folks that have raised capital in the sector are raising capital can you just talk about the timelines Duane of getting the California, and New York certifications dealing with the federal motor vehicle safety certification.
If you had a truck and a prototype ready to go and you had unlimited capital and you are ready to start series production, but you didnt have any of those items can you just talk about what your experiences and getting all of those approvals and certifications and what that sort of timeline would look like for for competitors in this sector.
Yes.
I'd say at least when you when you look at it as a whole right and you've got to align the testing environment, which happens in different areas of the country right and then those test results are given to another group will ultimately provide it to EPA and carb, you're looking at at least a four to six month process could be longer based on access to that.
Turning facilities.
Actual you know dyno, Tas, where they're running multiple thousands of miles.
We went through the test actually more than once.
In order to for example, when we initially did our first test on the extended range vehicle I think we got in the neighborhood of 152 mile range.
And then we made a modification software modification basically turned one of the two electric motors off when it reaches its you.
No I'm not Max but its continuous speed in other words as long as a driver is not releasing the accelerator or stepping on the accelerator, we can turn off a motor to make the vehicle more efficient and as soon as they release or step on the accelerator immediately turned out motor back on so we moved from like a 152 mile range.
The 160 mile range with that change, but we had to go through that testing process. A second time, but I think your question is what does it take to get through the certificate application processors that are required to do the things that we've done and I would tell you I'd go back to about a six month timeframe from beginning to end.
Got it that's helpful. Thank you.
Thank you.
Thank you. Our next question comes from the line of Mike.
Whiskey with Colliers Securities. Please proceed with your question.
Good morning, guys.
Good morning, Mike.
I thought if you Miss Lisa.
To ask has been asked already answered please feel free to refer me to the to the transcripts first the Pritchard order, obviously with fears about what pitchers role is and all this or they are these orders spoken for with end users users, where they just really an inventory stocking up for Pritchard.
And their job to actually fund the end users from there.
Yes, that's correct. So we appreciate that question, Mike. So Pritchard, then 107 year old dealership basically out of Iowa. They sell about 30000 medium duty trucks, a year of course to date, they've really all been combustion engine vehicles. So they've been getting hey, there are forward looking.
Dealership that understands you know that they are going to have to adjust to the market standards. So they did a great deal of research and so on into other vehicles that they could you know, possibly floor plan and sell but given where in the medium duty electric business, particularly in last mile delivery that extends beyond those sectors. They really.
Let us as you know the first opportunity to reach into that marketplace. So they will find their own end user customers as they always do I mean, they already have a group they sell many trucks to Fedex.
Ground contractors as well as beyond that so.
That 500 number is a pretty small number in their mind in terms of number of units to sell.
Okay.
I also want to is going to see what details on your Q4 outlook here I guess I guess first on the little bit concern.
Concerned.
We're all the.
Equals your plan to build here in Q4, all for Fedex as part of that contract or were there other customers there.
And I guess, you know are you a little worried about customer satisfaction.
To meet their deadlines, where I mean, if the holiday season, the folks wanting to have their trucks on time to.
Get packages delivered are.
Were there any reaction from your customers about not having what they need when they when they need it.
No it's interesting that to your point, that's a very logical approach, but in reality most.
Most of these places like the U.P.S. as of the World right don't like taking vehicles in the fourth quarter. Typically after you know even leading into Thanksgiving, particularly after Thanksgiving because November and December and even early January are very busy months for them, So onboarding new vehicles into their delivery cycles. This.
A somewhat difficult proposition for them.
However, as the world changes and things are changing as they are all.
All of these fleets, whether GPS DHL and beyond are all willing to work with us for those deliveries. So in some ways you know no harm no foul because it's not something they like to do anyway, but are willing to do it. So more vehicles, we get out we will have a home for them, but we will also be able to make up for our delay as.
As we said in 2021.
Okay.
Maybe when you are going out to find new customers for your vehicles are you finding that there are additional competitors bidding on some of these some of these packages and that's even if they're not.
Really ready today with their vehicles are they just trying to out trying to get out there.
And get business the way that you are today.
Can you tell us a little bit about what the other folks offerings are price competitive with yours.
You know from what we know this is Dwayne again.
I would tell you that there is multiple hurdles to get over in order to actually deliver to a customer. The first one is you got to have a vehicle designed and proven to be safe reliable and so on before you even deliver it.
The second part of that is once you think you haven't vehicle, that's safe and durable and you've got to put it through all of the cafe standards testings and so on to get through your certification processes right once you're through that and you're able to then start delivering vehicles, that's where you're really learn some things and that's where our vehicles that we delivered between.
During 2015 to 2017 give us a real advantage.
One of the keys to success here as learning their business and knowing as much about their business are virtually as much about their business as you know about your own because you've got to satisfy not just leadership at these companies and not just fleet managers, but individual drivers and so on they've got to feel safe, but not only feel safe recognize what makes them safer.
And so on so putting all of this together once you put vehicles on on the road and you start learning whether it's the performance of the vehicle or where the pedal exist on the floorboards any number of things.
We have a lot of I'm going to call them advantages and understanding from the learnings that we've gained over the last five years. So I would tell you once they are ready to deliver vehicles, then they've got learnings that will come to them about okay. What's generation to look like for them based on what they just learned that a generation of one.
Got it and perhaps one last one for me.
I know you have great telematics, and so forth, but have you talked to any of the drivers are users of the of the probably the most recent.
As I've, just been delivered and gotten their feel for what.
Our view is of the of the of the truck and how its oh forming to their standards.
Yeah, I mean, I would say the most recent customer and I'll, let rob jump in here, but well all the customers in reality are getting really positive feedback I mean, everything down to the point, where you're talking about a driver has used to driving this big steel chassis with a big heavy aluminum body in aluminum shelves that just the noise alone that is created bumping up and down.
On the road and start going from.
From stop to stop is an incredible amount of decibels of noise in our environment being the composite materials, we are and so on we practically and no combustion engine and so we've really eliminate a lot of noise that was well beyond just the engine itself, but Rob you want to speak to that so and in addition.
This is the perfect.
Task for any reason that you have a lot of torque at zero RPM, It's a perfect condition for electric motor.
You don't have the where items you do on a IC based engine so what we're seeing.
We sell with.
Total cost of ownership of secondary benefits of being quiet at neighborhoods easy start stop you know good visibility.
Low step in height. These are all huge factors for fleets and so we get a lot of positive feedback. We've always said this is like a big golf cart and it really is it's a surprisingly easy to drive some pricing we relaxing to drive so that's the feedback we get.
It's almost it's almost want to somebody takes his effort test drive it come back you opened the door. They have a big smile on their faces and they say I can't believe this and it really is.
As Glenn said you know these these vehicles have been in their form since the 19 fifties. This is this is the nest next evolution and it shows with our customer feedback I think one of the Testaments I would tell you as we delivered five of those seven vehicles as Steve said earlier to Pritchard in Q3, and we've already.
Sitting on a 500 unit order today I think that speaks volumes as to the perf not just the performance of the vehicle, but the overall acceptance of this new generation.
That's outstanding Thanks, So much guys I'll pass it along.
Thank you Michael.
Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Hughes for any final comments.
But.
Hi, Mike.
UBS.
Sorry, I wasn't ready for that thank you for joining us on our call. Today. We really appreciate you guys definitely want to thank our employees our partners our investors for their continued support and we appreciate your continued interest in workforce and look forward to updating you on our next call. Thank you operator.
Thank you. Thank you for joining us today for workforce group's third quarter 2020 earnings Conference call. You May now disconnect your lines.