Q4 2020 Workhorse Group Inc Earnings Call
[music].
Okay.
Ladies and gentlemen, greetings and welcome to Workhorse group's fourth quarter and full year 2020 Investor Conference call.
As a reminder, this conference call is being recorded.
It is now my pleasure to introduce your host Workhorse Workhorse, Chief operating officer, Dr. Rob Willison. Thank you Dr. Willison you may begin.
Thank you operator, and good morning, everyone. We appreciate you taking the time to join us for our call.
Before the market opened we issued a press release with all our results for the fourth quarter and for the year ended December 31 2020.
A copy of which is in the Investor Relations section of our website.
We also released our form 10-K this morning.
Moving to turn the call over to our CFO, Steve Schrader in a few moments and Steve will walk us through our financial results for the quarter and for the full year.
After that our CEO Duane Hughes will give you an update on our business and provide an outlook for the year ahead.
But before we begin I want 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.
Safe Harbor provision identifies risk factors that may cause actual results differ materially from the content of our forward looking statements.
Our 2020 form 10-K, and other periodic filings on file with the SEC provide further detail about the risk factors related to our business.
And with that I would like to turn the call over to our CFO, Steve Schrader, Steve Thanks, Rob and thank you to all who are joining us for today's call.
We issued a press release, which discusses the results of our operations for the quarter. Additionally, as Rob just mentioned our form 10-K was also filed today.
Recommend going through both materials to get more color on some of the information being discussed today.
Now to our financial results for the fourth quarter and full year ended December 31 2020.
Sales for the fourth quarter of 2020 reported at $652000.
Compared with $3000 in the fourth quarter of 2019.
For the full year sales were $1 4 million compared to 377000 in 2019.
The increase in sales for both the quarter and year was due to a higher volume of trucks produced delivered.
Cost of goods sold increased to $7 million from $2 1 million in the fourth quarter 2019.
For the full year cost of goods sold was $13 1 million compared to $5 8 million in 2019, the increase was.
Primarily due to a higher volume of trucks produced as well as increased production payroll and warranty expenses.
Selling general and administrative expenses increased to $4 7 million from $3 6 million in the same period last year.
The increase was attributable to higher incentive stock compensation and consulting costs.
For the full year SG&A expenses were $20 2 million compared to $10 2 million in 2019.
The increase in SG&A expenses was attributable to higher consulting costs and employee compensation.
Research and development expenses were $4 million, which was consistent from 4 million in the same period last year.
For full year, R&D expenses were $9 2 million compared to $88 2 million in 2019.
The increase in R&D expenses for the full year was due to contract labor increases and prototype development expenses.
Other income increased to $322 2 million from $15 8 million in the fourth quarter of 2019.
For the year other income increased to $323 1 million for.
From $15 8 million in 2019.
The increase is primarily related to an increase in the fair value of our investing in Lordstown Motors, which was valued at $330 million at December 31 2020.
Interest expense net decreased to $4 9 million in the fourth quarter compared to $5 6 million from the same period last year.
Decrease in interest expenses.
Primarily related to the decrease in the fair value of the company's convertible notes.
For the full year interest expense net was $198 5 million compared to $29 1 million in 2019.
The increase was primarily related to a noncash change in fair value of the Companys convertible notes as a result of the increase in stock price throughout the course of 2020.
Net income in Q4, 2020 was $280 5 million compared with a net income of 655000 in the fourth quarter of 2019.
For the full year, we had net income of $69 8 million compared to a net loss of $37 2 million in 2019.
Our increased production efforts for likely cause our go forward quarterly results to fluctuate we look to build a long term economically environmental sustainable organization.
As of today's call, we have approximately $215 million.
Our cash and cash on our balance sheet.
Over the course of 12 months workhorse as finance team has executed various agreements to strengthen our balance sheet.
There are several capital raises we have been able to improve our liquidity.
This capital infusion range represents a greater total amount and our combined fund raising efforts since inception.
Thanks to the progress we've made over the years translating to market acceptance and also provides us with the stability and resources to execute on our long term production goals.
We will continue to focus on building trucks to meet our backlog of orders. We will also evaluate the most efficient and responsible fundraising opportunities to support the submission.
This year, we increased our investor relations effort by conducting over 201 on one meetings and taking part in six investor conferences and totaled more than 800 attendees from institutional funds. This is the first time that we've concentrated our investor relations be an equity deal roadshows.
Completes my financial overview, I'll now turn the call over to Duane to discuss operations and outlook for Wayne.
Thanks, Steve and good morning to everyone on the call. We appreciate you taking the time to join us for that.
Start I'd like to take a minute to directly address something thats been top of mind for us as well as many of you listening today I'm speaking of course about the United States Postal service next generation delivery vehicle.
U S. P. S N G D V program.
As many of you are well aware last Tuesday, the postal service issued a press release announcing that it made an award.
Under the <unk> contract to a competing finals.
This was not the result, we had anticipated or hoped for and we appreciate the interest of the many stakeholders who've reached out to better understand the decision, making process as well as any potential next steps.
What I am able to share with you today is that we have requested pursuant to the publicly provided bid rule process rules additional information from the U S. Postal service and have scheduled a face to face meeting what's postal service on March 3rd we understand that many people want answers and information in a timely manner.
And we will continue to work with the postal service. According to the terms of our engagement as we move forward to be clear, we intend to explore all avenues that are available to us. We appreciate your patience in the meantime, as we allow this process to work through its proper course, now I'd like to get into updates from our.
<unk> beginning with a brief look back this past year.
The past 12 months have been a remarkable period for our company and for the World at large let me highlight a few items, we have been keenly focused on in 2020.
We raised $270 million in capital transforming our balance sheet, and giving us the capital to build the trucks in our backlog.
Made significant improvements and additions to our leadership team our board of directors and our overall head count to support production.
We achieved sought after and required certifications with both federal and state regulators, ensuring that our vehicles can be sold in the U S and now Canada.
Production readiness, we announced major strategic partnerships.
Volume to expand our production capabilities and sales reach while adding boots on the ground with consultants proven advisers and full time employees to achieve our goals, we announced several new customer agreements, allowing us to increase our backlog seven fold over last year.
We made tremendous progress with our horse flow autonomous delivery drones and participated in test deliveries with UBS and others that will ultimately impact the way, we deliver packages medical supplies and other goods and our new more distance world.
We were approved for the rigorous FAA type certification process.
Needless to say, it's been an incredible year for us and I'm, both proud and grateful for the efforts of our employees, who continue to dedicate themselves to our mission of changing last mile delivery, even in the face of a pandemic.
As noted on our last call in November our operations were unfortunately impacted by COVID-19 outbreak among our staff over the period of October 26, 2020 to January 29, 2021, we've partnered with the Hamilton County Health Department to contract raised more than 30 confirmed.
Cases of COVID-19, as a result, we were able to safely manage our employees and contractors and get them back into the workplace, we seek Nick we significantly enhanced our daily cleaning and personal protection habits.
Following all recommended CDC and local health Department guidelines. In addition, we also participated in a webinar offered by the health Department to ensure we had short up any areas for improvement here again, we werent daily on protocols, creating a safe environment for our employees and outside individuals on January 28.
This year, we received a letter from the Hamilton County Health Department, informing us that due to no new positive cases are fully booked for two for incubation cycles. They wouldn't be closing our case I'm pleased to share that in the six weeks since receiving this letter we have had only one new positive case of COVID-19.
As of today, while we believe we are past these issues that were presented by the virus. We are still continuing to take all appropriate measures following state and federal guidelines, including self monitoring taking temperatures mask wearing social distancing and routine handwashing and are adding further procedures as we adapt.
For this ever changing environment. These measures include increasing our professional sterilization and disinfection services as part of our daily Janitorial services throughout the day.
In the face of these new hurdles, we still continue to make progress on our recruiting from as well our large scale manufacturing plan requires we rapidly increased our workforce to support. These efforts in November 2020, we had roughly 90 employees today, we have almost doubled our employee count to 170 strong.
<unk>, which has been augmented by third party services, such as Hitachi and Bell Canada. In addition to our internal hiring efforts. All told we are 200 plus people strong.
Another necessary, but an important step in our plan to reach scale production is on the regulatory front in 2020, we were able to successfully navigate through the U S. Environmental Protection Agency and the California Air Resource Board for our 'twenty 'twenty, One series C series vehicles, our C series vehicles like.
The vehicles from any commercial E V. Operator has to pass a number of regulatory hurdles both on a state and federal level in order to operate on U S and Canadian roads. These certifications, while all meaningful in their own right represent a significant undertaking on the part of the applicant having completed all requirements for nationwide <unk>.
And rode readiness, we believe our current standing has us firmly in and an early leadership position in July and October. We also received multiple executive orders from the California Air Resource Board respect, respectively, designating different C series models and zero emission vehicles.
In the state of California.
Find with our certificate of conformity from the EPA in March our federal Motor vehicle safety standards certifications in June we.
We were the first medium duty battery electric vehicle OEM to receive approvals from both the EPA as well as car.
During the executive order testing process. Our C 1000 extended range achieved an urban driving average of nearly 160 miles and in urban highway blended driving range of 149 miles per charge, obtaining an executive order was only one of the preliminary requirements.
In order to be considered for the hybrid in zero emission trucks and bus voucher incentive project also known as H VIP.
Which we also successfully entered in late July with our eligibility until the program confirmed workhorse of C series Battery Electric shuttle vans are eligible for monetary vouchers of up to 45000 per vehicle.
Of course, there is also eligible to receive 2.070 emission vehicle credits for these models Zeb credits can be sold to other original equipment manufacturers to help them meet carb emission standards, our eligibility for the HBV program is expected to help dramatically reduced.
Purchasing costs for California based potential customers.
In October we also received approval from the New York truck voucher incentive program to offer vouchers for our C series battery electric delivery vans of up to $48328.
In support of our greater production efforts, we made meaningful progress on the sales front over the past few months, which has provided us with additional visibility into our production ramp going forward.
Thanks to our efforts in expanding our sales channels through dealer networks and other distributors as well as our attractive financing plan supported by Hitachi, we were able to increase our order backlog from 1100 units to just over 8000 units in November Pritchard companies placed a 500 unit order for our C 1000 electric.
Delivery vans, while the Pride group headquartered in Canada. Most recently placed a 6320 unit order that includes both C 1006 hundred 50 electric vehicles.
Combined the total value of these two purchases equates to over 600 million in sales. We expect the first deliveries to pride customers by as early as July of this year and.
In addition, we have forged a close working relationship with Hitachi as mobility strategy team to develop and expand our dealer sales and support network.
HCA has been assisting workhorse and strengthening a national dealer network supporting our sales with vehicle financing options for both dealers and fleet customers, including dealer floor plans.
We are also benefiting from their manufacturing expertise to further increase our channel sales capacity, along with our assembly and manufacturing process.
With that update completed I'll now get into operations and our vehicle Assembly progress limited production of C series vehicles continued in both the fourth quarter of 2020, and the first quarter of 2021 units were delivered to our premier customer base, including Pritchard automotive companies into one of our newer customers and.
<unk> home and office retailer, which we were able to garner through our dealer network relationships with fluid trucks.
I'd like to spend a few minutes to talk about not only have they committed to purchasing 500 vehicles, but they are also playing a key role in creating efficient and cost effective distribution channel for US. Richard provides provides workhorse with transportation services of our finished vehicles in Union City Doi Pritchard.
Debt center in Ottawa, Ohio, where they install value added products, such as custom shelving and racking vehicle wraps and paces and passive safety systems like 360 degree camera systems there.
Their custom built low boy trailers can transport to workhorse C 1000 vehicles at the same time, which effectively touch our transport costs and have.
Furthermore, Pritchard is assisting with our branding and marketing efforts as reflected by our current engagement through the purpose built national campaign that started in Tampa, Florida at the Super Bowl and is planning to continue over the next several months through more than 20 major cities in the U S. The mission is to bring awareness to company.
<unk> and cities about the electric vehicle Revolution, how it can help reduce greenhouse gas emissions and how to create a structure that supports the city's evolution towards electrification, which is aligned with the current administration's support for the EV industry.
We could not be happier with the strategic relationship as it allows workhorse to focus on scaling the production of our electric vehicles, while Pritchard handles the variability of individual customer needs as well as the effective distribution of <unk>.
Such vehicles throughout North America during our last call. We also addressed our supply chain constraints with battery packs and the inability for the current supplier to keep up with the volume requirements. We have addressed this issue in multiple ways, which includes working with our current supplier to overcome the supply constraints earlier identified we.
We've also collaborated with an additional supplier to further expand our battery pack options, assuming testing validates our expectations deliveries with the new packs are set to begin in the second quarter.
We're also working to enter long term agreements with key suppliers, enabling us to overcome the challenges presented by small volume spot buys and expediate and shipments that are sometimes needed for a company just starting production. We've discussed our target of <unk> thousand 800 units for the year and we are well focused on our requirements.
Needed to make it happen.
Well, we are facing various supply chain challenges, both internal and external and the ramp up to that goal. While we believe this is a feasible goal, it's a stretch but given our backlog we cannot sacrifice future build volume for current year production and scaling up manufacturing properly has to take precedence.
As of today, we have completed the setup of the initial of the initial assembly operations and are using roughly 33% of the plant capacity or the 33% of the total line available to support it.
This encompasses much more than basic assembly stations set up we have new hires in place to support the growing volume of daily vehicle production and have upgraded the assembly equipment on the line to make the manufacturing process, even more efficient.
During the fourth quarter of 2020 in the first quarter of 2021, we've continued to work closely with our partners Hitachi and belkin.
The focus of the Hitachi engagement following their operations assessment last year. It was to accelerate the progression of workhorse as factory from an R&D concept to a world class manufacturer of last mile mobility solutions with Hitachi is 110 years of manufacturing expertise.
Our over 60 years of leadership, we have made progress on the production from in addition, Hitachi and workhorse intends to partner on charging infrastructure capabilities for the touchy ABB power grids emotion.
Suite of solutions, and a pending workhorse customers through holistic EV solutions and accelerating accelerating our journey of EV adoption.
Our Hitachi partnership is also already yielded considerable results through the dealer development and vehicle purchase finance contracts awarded to workhorse through Hitachi capital Americas Fleet and dealer partners. We have taken a partnership for stuff further and have forged a close working relationship.
With Hitachi as mobility strategy team to develop and expand on our on our dealer sales and support network.
Next I'd like to quickly touch on gross margin expert expectations 2021 is our first year of scaled production and as with nearly every manufacturing company, whether they are spending on R&D are installing equipment the transition to manufacturing usually results in negative gross margins for a lengthy period and we are no exception.
As I mentioned earlier during a battery supplier discussion, we have a roadmap to lower our material cost through competitive sourcing engineering improvements and adding automation to the assembly line.
We'll take time to achieve therefore, it is fair expectation to expect substantial negative gross margins for 2021. Our engineering team has continued the development of the C series platform as we identify enhancements and change requests from our Blue chip customer base, our research and development activity is focused on improving that.
New model year C series, including enhancements needed to support production assembly efficiency material component availability cost reduction and customer feedback.
These new revisions incorporate an aluminum skateboard chassis, which improves the options we have to expand our production capabilities and our sales growth through expanded channels that include specialty bodybuilders and other third party operators.
In addition to the head count previously discussed we also added three new members to the executive team for.
John Graver, who has who leads the development of the horse fly program second as announced via press release last month. We also brought on Chris Nord SRV her as our new Vice President of commercial development.
Chris comes to us from Ryder, one of our major sales and maintenance partners, where he was senior director of advanced vehicle technology and energy products and.
In his new role, Chris will be focused on augmenting and expanding workhorse of sales and support infrastructure. He brings deep advanced technology vehicle experience and it will be invaluable as we continue to build production of our C series, all electric vehicles and expand our reach into new markets.
Third is our new human resources director, Susan Kelley, Susan has already established herself as a valuable member of the leadership team, particularly with our emphasis on quality and quantity of new hires.
I'd now like to provide an update on our newly monitored Aerospace division and horse fly drone business.
<unk> reliable and efficient operations drive everything we do in the last mile space, reducing or eliminating fossil fuels and package delivery is important but just as important is matching the total energy expended to only that which is required to do the job.
As part of our last mile solution set for years ago Workhorse started developing the horse slide delivery system Horseplay includes a small unmanned aerial vehicle ground control station customer interfaces and a sophisticated integration system that allows our aircraft to operate indefinitely from our pack.
<unk> delivery trucks.
Our horse fly system is a joint venture with Moog incorporated for.
For a jointly owned enterprise called service mode has.
Decades of experience in autonomous operations high reliability systems electrification FAA certification and safety. Our teams worked closely with mode to accelerate our progress in the last mile space and.
In 2020, we delivered thousands of packages and tests and demonstrations working with the state of Virginia, and UBS, we demonstrated how drones can fly.
Standoff low touch deliveries during a pandemic getting critical material, where it needs to be without endangering the people who have to deliver and use it.
We also worked with a major international package delivery company, demonstrating the safety and read a lot and reliability of our ground control station, our winch delivery systems and our aircrafts, we demonstrated a system that autonomously flies from a delivery truck to a place of the customers choosing up two five miles.
[noise] away delivers a meaningful payload then automatically returns to the truck for another delivery and our system delivers time after time after time design.
Designed for the heavy duty cycles logistics organizations demand.
In the last 12 months, our team more than doubled in size and our accomplishments grew as the team that we delivered to horse flow units and workhorse trucks with converted rooftops to accommodate the horse fly for EPS.
We performed our first commercial training for their crews are major package delivery company training, both flight and maintenance personnel to use our systems and.
And we entered the federal Aviation administration pipeline persist for certification of our horse for life system. So this is a new process for the FAA and the industry. We anticipate completing certification in the next 18 months.
The FAA prioritizes drone development through what is called the beyond program. The state of North Dakota, as a participant and beyond and we have joined with North Dakota is a partner in there beyond program.
We expect our work in the northern Plains test sites to accelerate our work in expanding how our systems can work and where are they will be allowed to operate.
Verizon CEO Hans Vestberg gave the virtual keynote address at January's consumer electronics show, where workhorse and horse fly figured prominently in that address our package delivery trucks were shown in EPS colors are horse slide delivery drone also in UBS colors delivered packages out of <unk>.
Our patented truck top delivery system.
Of course aerospace exist to enable our customers to safely reliably and Thomas Lee fly a practical play payload a meaningful distance, making the entire delivery process, a more effective and efficient process in 'twenty and 'twenty. One we will build more aircraft systems and we've ever built before our plan.
Calls for FAA flight testing in various climates and geographies will lock the designs of our hardware firmware and software and.
In 2020, we created the conditions for providing safe reliable aerial package delivery in 2021 will start actually doing it in service to the public.
That concludes my prepared remarks. Thank you all for your time. This morning, we look forward to updating you on our progress going for and we're now ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad.
Confirmation in total R&D Grant your line is the other question in queue.
Price start to if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Greg Lewis with <unk>. Please proceed with your question.
Yes, Thank you and good morning, everybody.
Yeah, Steve.
Thank you for.
And Duane Thank you for for some of the comments.
Was hoping you could kind of dive in a little bit more around production.
It sounds like Q1 is going to look a lot like Q4 or close to it if you could kind of.
I'll walk through how we should be thinking about maybe the next few months and realizing that.
Bell can has been there, but I believe that's wrapping up you know kind of how should we be thinking about.
Production is as we kind of move forward here over the next stop you from a few months or few quarters.
Yes, Greg Thanks for the question I think from a production standpoint, I think you're kind of right on with what you just said.
From a standpoint of them.
Part of it is we're trying to do two things at one time, Greg you know, we're trying to actually <unk>.
Max out the door right now, but also set up the systems long term like you mentioned with our partners and patchy and Belkin net.
Now we can fulfill our backlog of orders going forward. So having said that I think the expectation should be we're trying to get to.
A target of three <unk> a day some time here this month.
And then.
Also we will continue to keep out or.
Can a day by the end of sometime in June or by the end of the second quarter.
So that's kind of our goal.
I think from a standpoint of where we're at right now.
We've already got some we've got some trucks out the door and we'll get more out here in March.
And that's where we stand with production.
And Greg I would add to that is what Steve said is the real key here is making sure that as we head forward debt. We have all the appropriate production systems in place as well as equipment, but primarily in our systems and processes that allow us to make jumps from three to 10, and 10 and more going into the future again as Steve said.
To complete our current backlog and in our growing backlog as we move forward. So when we had our slowdown I'll say in the fourth quarter due to Covid. We looked at what can we do beyond just sitting here waiting for employees to be able to come back to work. So we kind of picked up the pace of what we're doing with Hitachi.
The team in developing the systems and the processes. So that we can more quickly grow our per day units than perhaps we would have had we just been using that brute force method of getting trucks out the door.
Okay, Great and then and then.
Another question I wanted to pivot a little debt around.
Incentives and I believe you know some of your customers.
You are kind of waiting for some of these incentive structures to kind of take hold and some of these states like California, where I believe some of your customers are looking to you know it takes some first deliveries of some other vehicles could you talk a little bit about.
How some of these state incentive structures are looking in and when we think about that potentially being funded so that as production starts to ramp up here over the next call it couple of quarters.
How we should think about.
Where we are in the process from the states in terms of being able to actually fund some of these incentives.
Yeah, a few questions here Greg. This is Duane I would tell you first and foremost our plan going forward, particularly through our sales channels partners, not just hitachi and pride and prichard, but beyond right has the ability to provide a price point that these trucks that they actually are very.
Quickly in three years or less and then provide debt significant total cost of ownership savings, giving us the opportunity to sell more trucks without requiring voucher programs, but to your point in states that have voucher programs I mentioned during the talk that California, and the C 1000, as much as $45000, where we can.
Take advantage of that and increase the number of units, we're delivering in California and in this case.
I'm sure there will be fleets, who wanted to take advantage of that to me and from what I understand is that program will be areas anticipated to be funding in the second half of this year. So we are doing every day, we're making concerted efforts it using our sales channels partners to find those.
Or is that arent necessarily in a voucher state where we can deliver these vehicles without requiring that voucher program, which is what youre seeing in the 8000 backlog now and what you'll see in the future as we continue to add new customers I should say this right one of the things that you've seen over the last few months as our.
Expansion of the customer base, rather than relying on one or two or maybe three of the largest logistics last mile companies out. There is we are now working through channels that allow us to reach let's call them. Some of the smaller fleets, but also the largest fleets across multiple countries. So.
Look we're really paying attention to how this voucher money is coming about how it's being competed for against the Covid pandemic. The things that are slowing it down and how we can address that market without requiring the vouchers.
No.
Okay, Perfect, Hey, gentlemen, thank you very much for the time.
Great job. Thank you Greg.
Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Thanks, So much guys can we just get a little bit more detail about some other elements in the supply chain debt.
Our proven cumbersome for you guys wanted to get a sense of how much of a bottleneck that that might be on a go forward basis.
Besides battery packs office.
Yeah I think.
And what I said during my talking points, where we're talking about the external supply chain related issues. You know one is a very common when we've known about for.
That's affected all your other Oems right.
Being the microchip piece right that's impacted from a couple of segments, whether it's steering racks for body control modules things like that obviously the components that need microchips now we've done a good job now of finding additional sources to alleviate our overcome those shortages, but then I also talked about those internal hurt.
<unk> and those internal hurdles I already spoke about that relate back to putting systems and processes in place and the plant to allow us to I'll say speed up our ability to move to a larger number of units per day and so while there is components out there.
So in some cases not much visibility in those components some of the ones that you know about again like the microchip and so on have impacted us, but again because of our limited volumes today right. We can continue to get trucks out we don't have to shut everything down.
But we're looking for the ability that once we have the systems and processes in place to more quickly adjust to.
The ability to build trucks without dealing with without having to deal with supply.
And related issues.
Excellent and then just in terms of the sales process I'd say, there's been a handful of other announcements from some larger Oems moving into the delivery van.
Space, but can you talk a little bit about some of the sales dynamics in terms of times, it's actually contracting volumes some of the discussions around pricing now that there's just a bit more competition in the space.
Yeah, I think that's a great question, Colin and I would tell you multiple things happening you heard me talk about our I'm going to call. It our purpose built national tour that.
Starting in February with the Super Bowl is scheduled to roll through 20 different cities with our partner Prichard, who are taking two workhorse C. One thousands to the cities and doing different campaigns throughout those cities everywhere from I think they are in Charlotte right now there'll be in Minneapolis.
This week, they moved to Cincinnati D C, California, and so on right.
That is one way, we're able to get the message out with a demonstrable proof of performance concept actually delivering product delivering products from partners that if you go back and see a few of the videos that were out there.
You'll see how that campaign is able to.
I'll say bring the workhorse name more awareness, what we do in this last mile delivery segment the other pieces.
The differentiators of the vehicles themselves, which really helps sell the vehicles to in our case last mile delivery fleets and those Differentiators you heard me talk about a bunch of times, whether it's the low floor. The performance of the vehicle itself the mileage.
But as importantly is the horse fly delivery drove right the ability for us to.
Further reduce the total cost of ownership by augmenting the electric vehicle with our electric delivery drone that allows these fleets to a differentiate themselves reduce their cost and ultimately give them an opportunity to grow their market share because they're expanding upon the technology tools that are available to them to me.
The ever demanding need that consumers want which is product more quickly delivered for them at a more.
Carbon friendly and reduce cost capability.
Great. Thanks, so much guys.
Thank you Carla.
Our next question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed with your question.
Good morning, and thanks for taking my questions.
So president Biden has been pretty straightforward out there about his priorities, particularly.
And having the federal fleet convert over toward electric vehicles over the next in the next several years.
Most of the federal agencies have to go through OMB, when they have big capital programs or you.
You know a big policies that are there that are up for regular reinstatement publish publishing in the Federal Register.
It seems the postmaster general.
It has a slightly different situation where he.
It's not really accountable to the president the way that that others are in the other federal agencies.
Given the post office has to file a 10-K and he answers to abort.
Can you maybe talk a little bit about the debt.
Line of accountability in the post office as far as following federal rules.
And you know the line of accountability as far as following presidential priorities any comments there would be really helpful.
No I'm not.
I, probably can't speak as deeply as others cancer this but to your point.
It's from Astra General reports to our board of Governors and that board of Governors today I believe at least three of which were appointed by President Trump or former President Trump and.
And just in the recent news yesterday, I think I read that.
Biden had appointed three new people to that board of governors, which will fill it out too I believe all nine seats. So clearly in my opinion.
Due to the award and the decision being made to go basically combustion engine vehicles in the fleet at the post office and.
And by then having signed his.
<unk> in order to take the 645000 fleet of government vehicles, all electric I think what we're seeing is a speed up in what.
President Biden is doing to put the board of governors together in such a way to support his.
Plan going forward, so again I'd, probably getting the news just like you are directly from other public as well as for things that we're doing.
To follow up with the current situation ourselves and how we're getting educated but youre right. The postmaster General does not take orders from directly from the President and it comes from our board of Governors. However that board of governors can be affected by the president and how he sees people on that board.
Understood. Thank you for that thank you for that my next question is.
The Joy gave testimony in the last couple of weeks, where he seemed a little confused.
He said debt.
Electric vehicles don't really have a maintenance benefit over combustion engine vehicles, which seems somewhat ludicrous and in my view.
Most most.
Truck.
EV truck platforms are looking at somewhere between 50 and 75 per cent reduction in AR.
In maintenance costs typically around two thirds.
Where do you think joy is getting his information from them and do you think he's he's at all accurate.
Let me let me.
Good question, Craig I appreciate that I'll give you my two cents worth.
Which is really coming directly from our customers. The comparison from a fuel and maintenance perspective of an EV or electric workhorse truck as compared to its combustion engine counterpart is absolutely not comparable at all the EV wins the race by miles upon miles right.
So with that said what I heard Mr Day Joy say during his.
Time in front of Congress.
In front of the subcommittee.
Does that if you take into account infrastructure, that's required to be put in place in order to charge those vehicles. At night then it comes down to a draw I would argue that also that that's that's not comparable either yes. It adds to the cost, but it does not one impact the comparison of the total cost of ownership.
From an EV to its gas engine counterpart. The other part is your plan to if I own my own fleet and the idea was I was buying tens of thousands of these vehicles, but I plan to convert them down the road to electric and I would tell you that that offsets the cost of the infrastructure already so I don't believe it.
I'm going to say well thought out answer it was more of a how do I respond to this and I don't and I.
I also recognize I don't know if they were talking about a 10 year total cost of ownership of 15 year or 20 year, but what we know is.
Length of time and I think this was public is that we were designing a vehicle to last more than 20 years. So the total cost of ownership at 20 years is where the comparison would need to be made.
Excellent.
That's good to hear good luck on your on your challenge of this asset curious award that was made by the post office. So I also wanted to ask.
Little bit about the new customer opportunity. So you've had some some pretty nice traction out there.
With different names.
I would assume that now that some other vehicles have been on the road for C 1000 vehicles I shouldn't say, it's been on the road for.
Several months.
There is potential for others too.
Interact with those original operators to learn from them and really see the economics validated can you maybe frame out for us how the the front end of your pipeline funnel.
Potential customer interactions is looking you know what do you feel about the potential tempo of orders.
For the C 1000 over the course for the next several quarters.
Yes, I appreciate that I think what we're seeing already in terms of the pipeline in terms of the sales pipeline is.
Movement.
Ahead of where we are today I can't speak I haven't said anything publicly about this ought to be a little guarded here, but for example, I keep talking about this 20 city.
Purpose built national tour that we're doing with our our partner Pritchard right, where they're taking two vehicles to these cities and doing real life deliverables and performance in and having ride alongs and the things that go along with again demonstrating proof of performance, that's a big deal, but again with our Hitachi relationship who has.
Dealers across the country and if you take just the five states alone where they did a 100 dealer survey in terms of Evs and what they were looking for workhorse scored if im not talking out of turn like highest on the chart in terms of.
Most proof of performance right. The most number of vehicles that are currently out on the road in this space and the most number of electric delivery vehicles that were out prior to the C series as well. So we have a deep bench. If you will of data that allows us to further demonstrate that proof of performance added to through our debt.
<unk> that I just spoke about.
I think collyn before I think what we're going to see is that continued increase in these orders as we make production match our ability to keep up with those orders. So we're very excited about the pipeline that we're seeing how it's how it's being able to be built upon and primarily through those sales channel.
Those that I keep talking about.
And in fact, if I can add to that Craig is I would say too is I think we've said this to you and others before our goal is to make money on selling the truck, but there's a lot of after sale opportunities with infrastructure and financing and service and I think that's why you see the top quality companies out there that understand that there's money to be.
Made there and they see that we have a product out there that customers like and are ahead of the field by a couple of years and that's why I believe aligned or that's why Hitachi and rider and Prichard and pride in Duke are all kind of aligning ourselves with us so.
I think we certainly anticipate more orders this year.
Okay excellent excellent last question, it's actually a question I've had from a couple of clients. So.
Let me just frame it out right so.
You know everybody has been pretty much shocked by the by the Oshkosh Award.
And I'm guessing your customers arent too can you comment maybe whether or not.
This is impacting your customer relationships are what are your customers, saying about this award for the post office does this really impact you guys from a competitiveness standpoint on the C 1000 core offering going forward.
You know what I would tell you Greg is and I appreciate that question because what we're hearing from our customers is a lot of frustration that youre hearing from the public as well as the Democratic Senators and that boils down to much more even more support for workhorse right. We've got our customers.
Coming back, saying keep your head you have got the best product out there right. We're with you all the way in this and in some cases, it's we're even now or even more motivated to make the point that the EV strategy in the workhorse EV strategy in particular is the way to go and that's not just from one customer.
That's from multiple customers along the way if anything I always felt like two things one is and I've always said this with or without the post office, we have a business here and we have to focus on being able to build that business. If the post office comes yes, that's a game changer and all that on the opposite side, what I didn't realize was how many of our.
<unk> are standing behind us and screaming from the rooftops, how well, we're doing and so and so if anything I would tell you that it's been a positive very positive overwhelmingly positive response from our customers in support of workhorse in the vehicles.
Our future Technology road map going forward that they are standing behind.
Okay and then last question is really just.
The confirmation do we know for a fact.
In black and white somewhere maybe that there was no other EV or hybrid submitted in the entire RFP RFP process for this procurement at the post office in debt.
For a fact that the debt.
The addition with last minute.
From Oshkosh.
Yeah.
But.
All I can speak to is that because we are still technically under NDA with the post office as we do know through reporting like Truckstop com.
The freight ways all of the other media and the attention. They got is yes, there, whereas the Oshkosh Morgan Olson hybrid.
And then there was.
The Oshkosh combustion engine for transit and then there was our vehicles. So we are not aware of any other vehicles that went through that one of the finalists that went through the durability testing process, but I cannot speak to what Rfps were delivered I'm not aware of any other arm.
<unk> is being delivered to the post office, nor am I aware of what the competitors Rfps said that they would deliver but I can tell you that our RFP stuck to our stripes and what we said through durability testing sure. We may enhance that a little from those learnings and ore from the newer technology that's even.
And available to us today, but we stuck to our stripes. We gave them an RFP that was based upon the six prototype vehicles that we deliver to them.
Back in January I am sorry back in 16 17 timeframe.
Great well, thank you and good luck with your meetings. This week I'm sure. Our representatives are going to work hard to do the right thing here. So thanks Bob.
I appreciate that Craig Thank you.
Our next question comes from the line of Mike swiftly with Colliers Securities. Please proceed with your question.
Hey, good morning, guys.
The lineup.
Good morning, So I wanted to follow up quickly on on the postal service contract.
I mean.
No.
Oshkosh has made an investment in an EV battery supplier.
I was working with for we're just going to be introducing the 40 transit in a couple of months.
I guess you know if the USPS does asked for this whole thing to go EV or mostly even in the future do you think Oshkosh can deliver and.
Hey.
If they were asked to do so.
You know I can't speak to what Oshkosh has capabilities are I would just say as a day.
Defense contractor in a business that they do they're.
They're good at what they do right, but I would turn it the other way and say well I know right now that we are without a doubt in my mind right. He most confident EV maker and the last mile delivery space first of all the last mile delivery space as we all know is not like putting any other vehicle out on the road.
When you have a vehicle that's going to go anywhere from 18 miles a day to 300 miles a day, let's call it and it's going to stop many many many hundreds of times throughout that duty cycle that puts a lot of different demands on a vehicle than does perhaps a military vehicle and or even a fire truck ambulance other things so.
We know that our many years of experience working with the Blue chip customers. We work with we have substantial amounts of learnings that have allowed that has allowed us to design last mile delivery vehicles, not just outperform anybody else we've seen to date.
And also are built for the future, meaning our vehicles adapt to the future as the future changes so whether it's with the idea of autonomous drive we started economist by adding a drone and autonomous with delivery drones for the top right. It's crawl walk run. So we feel like we are the best.
Solution for anybody who wants to take a fleet all electric particularly in the last mile delivery space.
Okay, Okay, Great and then I wanted to ask secondly about.
The California program that's out there.
So a pretty strict tied for the fixed and I find that they want to put out there than a fixed amount that you can get so eventually the popular now.
There's been so many more competitors and indeed in the EV space and it seems like adoption is kind of rolling up here and doing a lot better.
But at the same pie. So I'm curious do you have any feel for how much.
What amount they might fund the Asian ERP program for for this year and for National Day.
Increasing it with a number of other competitors that are currently in the EV market.
You know I don't this is Duane again, thanks again for the question.
Don't have an idea of what the fund will be I guess, if you look back historically, you could probably use that as a judgment call. However, we do know that the Covid pandemic has impacted these programs because money is going for other purposes. The same as you see things like the stack up of parts.
Parts at ports right now because.
It's more important that COVID-19 pandemic things get put on those ships and brought over here then the necessary than necessarily components like micro chips, and so on but I guess, what I'll say for that is I don't know the amount, they're going to fund, but I do know they have altered the program so rather than having a 100 units dedicated to a fleet.
<unk> not only going to have 30 units dedicated per fleet and Thats why our focus is on not requiring a voucher to make it make sense pencil out right provide the right ROI and a substantial total cost of ownership savings again, however, whatever monies available that we are able to northern or on behalf of.
Our fleet customers or they can actually garner for themselves, we will use it and take advantage of that but we are building a business plan that does not require the voucher.
Got it and then maybe just one last one for me between Friday Pritchard, the 6820 units per store that had been.
Ordered.
Can you give us a sense as to the most recent quarter and the sell through I mean, what what what amount has been actually ordered by end users of that of that of that number and you know what.
What's your timeframe for getting those delivered to people.
Sure certainly want first quarter deliveries and will get first quarter deliveries.
Certainly we will talk about the first quarter results on the second and in May when we have our next earnings release.
<unk> is really don't want any Intel July and then just kind of initial order about 'twenty of 20 total 10 each of the 650.
C 1000.
For like the last six months.
They are stepping in and or 6320 order.
600.
Following year 2022, and 2023 each year and then the 5000 for the last three years.
Pride is also looking at.
Part of their staging it out it is getting the infrastructure in Canada in place from their standpoint to making sure that the demand is there as well so.
I hope that answers your question Mike.
Well I would say.
He was asking whether they were spoken for by it.
And users.
I would tell you we don't know all of the end users in the group, but they have they have identified specific end users and we've actually delivered a few now we can't name those end users because they have.
Plans in the upcoming months to make big splashes in their marketplaces, and so on as to what Theyre doing E V Wise and I mentioned one of those in the script earlier international retailer Blah blah blah, but they do have identification. They have identified their initial fleets to begin deliveries with but it's not something we can talk about.
On today's call.
Okay. Thanks, guys I appreciate it thank you.
Thank you.
Our next question comes from the line of Jeff Osborne with Cowen and company. Please proceed with your question.
Good morning, guys. Most of my questions have been answered just a couple of housekeeping questions. On my end one can you disclose what the deliveries were for Q4 in aggregate.
Yes, we had I believe seven deliveries in Q4.
Got it.
And then with everything going on at the factory operationally that you talked about which was helpful. On the detail Steve can you give us a sense of what the Capex budget is for the year.
Yes, the Capex budget is not huge I think we'll probably have a budget of about $6 million for the year I think what you need to consider more though from a standpoint of the working capital requirements have gone up from last year quite a bit.
You know one we doubled our labor force to we're doing a lot of Prepays.
Or are kind of low revenue situation.
Here's what Prepays and three were building up the inventory.
So I think the cash requirements are going to be a lot higher this year than they were in the past.
Got it and then you touched on the gross margin trajectory being negative.
It's sort of in the near and near to intermediate term can you give us a sense of how many vehicles would need to be sold the quarter to be gross margin breakeven with the current staffing anticipated and the cost per day.
Sure, Jeff I think it's a good question.
I'm answering this from a standpoint of where we are delivering in small volumes right now and so I wanted to keep wants you to keep that in mind, but I anticipate to get to our gross margin.
Maybe three to 400 per month.
You know that.
We feel we can kind of maybe get to our gross margin targets at that point in time.
That's for the target, which is what 15% that I was talking about breakeven. So if you could just confirm the breakeven and the target yes, that's right.
Yes, that's probably closer to 200 per month.
We're going to go through just like any other manufacturing company when they go through renewal struggle. This year to get that gross margin even positive you know and don't anticipate going positive. This year. So it's.
We're doing it like every other manufacturing company. When you go from R&D are selling equipment to actually putting out the product.
Got it and my last question I'm not sure. If you can touch on this but are you were you were helpful with Craig as it relates to the post office and some of the dynamics there.
Alluded to in the script of exploring all avenues can you just talk about what those avenues are above and beyond the meeting on the third.
Probably can't get into too much detail. This is Duane Jeff appreciate the question, but we're talking to different entities in groups out there and really getting our.
Let's let's say, we're going to get.
Information inflow right. So we know one available options that we have and the way to approach not just the post office, but whomever else, where you have to approach to better understand how we might go about having a constructive conversation that leads to something more positive down the road.
Got it well best of luck with the meeting that's all I had thank you.
Thanks, Jeff.
Our next question comes from the line of Craig Shere with Tuohy Brothers. Please proceed with your question.
Good morning, Thanks for taking the question.
Thank you Greg can you see any debt.
Do you see any linkage between additional material commercial traction and progress towards filling orders already in hand.
Basically customers, saying, let's see what you can do with what you've got because if I give you a 5000 unit order in the next three years, what good is it if you're not ramping production improving you can get it out the door.
Craig It's funny I think it's just the opposite situation I think customers are looking at and saying they know for the most part this year. The orders if we get 1800 out the spoken for so they are looking at can I get on your 2022 production schedule can I get into your 2023 production schedule. So if anything I think it's a selling point.
So yes, I don't think were finding any hesitancy of orders from that standpoint, because I think they.
Like the truck they like the price point on it and.
Again, like we've said I think we anticipate more orders this year for sure and some of it Craig I would tell you is the infrastructure play right infrastructure has always been like the largest barrier to entry here. So now what we're starting to see from these customers. When they are talking about 2022 2023 years and can you help us understand what we need to do or who we need to be talking to.
So like our partnership not just with Hitachi, but with Duke's newly created E. Trans energy service rate that allows us to help find ways to provide the infrastructure required for these fleets. It really gives us a more well rounded approach in conversation with these fleets who want to go electric but arent quite for as far along as.
Other fleets are today.
Understood a turnkey offering should be very very powerful.
Rapid can you speak can.
Can you speak to the <unk>.
<unk> is filling U S orders and are there any early indications I know, we may not be able to sell it for 12 to 18 months, but any early early indications of potential horseplay orders both in conjunction with the EV truck, but also on a standalone basis.
I would answer that.
By saying, yes, there's potential on all of those fronts as I mentioned in my remarks, we've done well for example at the Verizon keynote right.
As the CEO was giving his keynote speech what you saw in the background was a workhorse electric vehicle with a workhorse electric drone, leaving the truck doing a delivery coming back and focusing on for <unk> network for up for a Verizon their partner UBS in the delivery space right and we the work.
Force technology behind the scenes, bringing that to fruition. If you will vote by using <unk> wireless capability with our drone as well as what we do for <unk>. So, yes, I would anticipate sing.
More business to be had of course, there's relationships and theres contracts and things that have to be done, but we are working towards making sure we can.
Fulfill our technology with many different customers and fleets to that point the drone, while a key differentiator for our truck side of the business as the truck launched in landing capability. Our drone is designed to not require a truck. It can it can go from a parking lot a roof top or.
Or virtually any setting like debt would require deliveries to be made.
In the past we've done things from.
The cvs's of the world's parking lots and so on is test environments right. We do these things what we did in Virginia right in April of last year too.
As the pandemic was announced so yeah, we feel that we have a very strong business case for the drone not only to help us sell more trucks, but could be its own stand alone business as well.
I guess I was looking for a couple of things one is if.
If I'm not mistaken of those actually produced and delivered in the third quarter.
Non <unk>.
Trying to get a sense of when the EPS deliveries will start ramping and I'm also trying to get a sense of your expectation I know this is kind of in the future.
Say the percentage of your your C. One thousands that would likely be taking the integrated horse flow once it's fully approved.
And if you've gotten any kind of body language from potential customers about the potential size of Standalone orders.
Let me ask the second let me answer the second question first Greg I would say there are three major customers you've all heard other out there that are definitely interested in the integrated.
Truck drunk product okay.
So we certainly anticipate that something will come in at that down the road.
It's a combination obviously, we haven't got production now it also is when and where EPS would love to take their vehicles first they have a depot in California in San Diego, that's already with infrastructure. They love to get the voucher program too so ideal I think their first.
Trucks would ideally go to California, now somewhat we're already talking about the HBV program program and how you know when that will get funded so it's somewhat dependent I assume we assume for the most part if if that is not funded or they can't get vouchers and but we have production in trucks ready to deliver them we.
But they would want to take them in as well.
Okay great.
Any quick updates about your refrigerated truck R&D effort.
Yes. This is Rob willison.
Beginning a build.
The test mill, we have.
Board of advisors that.
Are helping us coach through.
The configurations and innovations.
It's no small task to make a refrigerated.
Vehicle with a diesel.
It's even more daunting to make it electric but.
You know I think we have a.
Good path forward. So we are beginning a new build on that will begin to take it through some testing throughout this year.
And that's on track as well I do want to make a comment about infrastructure, though.
Our vehicles are especially for fleet can be charged on level, two and what you've heard from other fleet manufacturers about fast charge and the cost of fast charge.
Infrastructure very expensive as far as.
Hmm.
The Chargers as well as the amount of electricity needed because.
Of the nature of our vehicles being lightweight and very efficient we can charge overnight on a level two charger, which is much more economical than what some others have done so.
Whats been said our technology.
Workhorse is a technology company we are.
And for a way ahead.
Ed of others.
All the way from the drones to the motors for the batteries to all of our experience and.
So I hope that.
Hope to answer that question.
That's great. Thank you very much.
Yeah.
At this time. This concludes the company's question and answer session. If for your question was not taken you may contact workhorse as Investor Relations team at WK H S.
Wei IR Dot Com I would now like to turn the call back over to Mr. Hughes for his closing remarks.
Well. Thank you again for joining us on our call today, I, especially want to thank our employees our partners our investors.
And all of our support folks behind US. We appreciate your continued interest in workhorse and we look forward to updating you on our next call. Thank you operator.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.