Q1 2021 Workhorse Group Inc Earnings Call
[music].
Ladies and gentlemen, greetings and welcome to Workhorse group's first quarter 2021 Investor Conference call.
As a reminder, this conference call is being recorded.
It is now my pleasure to introduce your host Workhorse, Chief operating officer, Dr. Rob Willison, Sir 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 our results for the first quarter ended March 31, 2021, a copy of which is in the Investor Relations section of our website.
We also released our form 10-Q this morning.
Then ill 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.
After that our CEO Duane Hughes will give you an update on our business provide an outlook for the remainder of the year and introduce our new commercial vehicles and aerospace presidents.
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.
The safe Harbor provision identifies risk factors that may cause actual results to 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.
This morning, we issued a press release, which discusses the results of our operations for the quarter dish.
Additionally, as Rob just mentioned our form 10-Q was also filed today.
I recommend going through both materials to get more color on the information being discussed now to our results.
Sales for the first quarter 2021 were recorded at 521000 compared with 84000 net.
First quarter 2020.
The increase in sales is primarily related to an increase of trucks delivered.
Although we are proud we have produced 38 trucks as a day there were a total of six trucks delivered in the first quarter.
That's a good solid increased to $6 2 million from $1 7 million in the first quarter of 2020 <unk>.
Increase in cost of goods sold was primarily related to an increase in the volume of trucks shipped as well as an increase of employee costs and freight costs.
Selling general and administrative expenses increased to $6 9 million from $5 6 million in the same period last year.
The increase was attributable to an increase of employee and consulting cost.
Research and development expenses increased to $3 9 million from $1 9 million in the same period last year.
<unk> and R&D expenses was primarily related to an increase in prototype truck builds as well as an increase in employee and consulting expenses.
Other loss increased to $136 6 million from other income of 865000 in the first quarter of 2020.
The operating loss is primarily related to a reduction in value of the fair value of the investment right.
So its non cash and as determined by the stock price of ride as of 331, 2021, which was $11 77.
Interest income net increased to $14 9 million in the first quarter compared to $13 million from the same period last year increase in interest income was primarily related to the noncash mark to market adjustments related to the convertible debt instruments that were in effect during these periods.
Net loss in Q1 of 2021 was $125 million compared with a net income of $4 8 million in the first quarter of 2020.
Excluding the noncash adjustments operating loss for this quarter and $16 5 million compared to $9 1 million in the same period last year.
As of March 31, we had approximately $205 1 million in cash in our balance sheet.
That concludes my financial overview, I'll now turn the call over to Duane to discuss operations and outlook Duane.
Okay.
Thanks, Steve and good morning to everyone on the call. We appreciate you taking the time to join us today.
In our March call. We informed you that we have better aligned our efforts to increase production output.
Our Union city manufacturing team with their 25, plus year history of producing medium duty chassis, and our Cincinnati and Union City product and manufacturing engineering teams continue to work closely with our partners Hitachi and Bell Canada Engineering.
In addition to bell cant support with boots on the ground, we have Hitachi, who brings 110 years of manufacturing legacy and more than 60 years of I T leadership to improve the design and execution of our production line. Hitachi is also working with us to deploy best practice engineering sourcing.
And production processes in order to achieve our goals.
These efforts from our integrated teams have begun to bear fruit and we have produced a total of 38 trucks year to date more than doubling the number of vehicles produced compared to previous three quarters combined.
Two of our customers Richard automotive and bright automotive group. We're excited about receiving these vehicles over the next few weeks. They are eager to begin their upsetting and extended marketing efforts contractually we worked to deliver the first vehicles to pride in July but at their request, we were asking for a handful of vehicles URL.
To begin their marketing efforts and we are happy to accommodate them.
Although we're hoping to have achieved this year to date number of trucks produced sooner. We took the additional time to ensure that we are delivering a top quality product to our customers. Both teams from Hitachi and Dell can have helped us apply the findings of what we've learned during last year's operations assessment into our day to day work flow.
No again has been instrumental in helping us get our production efforts up and running by providing engineering and production resources to ensure smooth operations until we could hire permanent team members. Their team has been dedicated from the get go and play the pivotal role every day for the past few months, although we are phasing out there.
Hands on support we appreciate their efforts in helping kickstart our production activity.
Our relationship with Hitachi continues to grow in many ways Hitachi capital supports us on developing key strategic accounts through inventory finance and capital optimization solutions. A great example of this is with our premier customers Pritchard automotive and fried automotive group Hitachi capital has also established a workhorse.
Dealer Advisory board involving six key channel partners advising us on developing a dealer network hearts financing and service and warranty support.
We continue to have conversations about collaborating on charging infrastructure capabilities through Hitachi is ABB power grids and emotions suite of solutions, developing and expanding our dealer sales and support network and.
In addition to the external resources. We just discussed we have also been growing the number of assembly workers at our Union City production facility. We now have approximately 100 Assembly line employees and 40 managers inspectors material planners and buyers, which brings the number of staff at our Union City production.
Facility to nearly 140 employees.
Today I'm also pleased to announce that we have entered into a strategic agreement with E. B X a subsidiary of JB Poindexter and company, who operates the largest number of commercial truck body and accessory manufacturing plants throughout North America. This agreement Leverages workhorse is leadership.
And the last mile delivery, including E vs control software and drone technology and E X and the point extra group of companies decades of experience with vehicle body engineering construction and assembly.
We look forward to taking the best attributes of our two companies and applying them to fleet operations and to developing the next generation of last mile electric delivery vehicles.
[noise] agreement also opens up other valuable areas areas of collaboration including development and manufacturing partnerships.
No we are certainly making steady progress in improving our manufacturing throughput we are adjusting our 2021 production estimate to 1000 units the reasons for this adjustment our issues within the supply chain and our commitment to get to best practice processes.
That was in place and enable us to scale, our manufacturing capability down the road.
We believe that the commitment to ramp up in this way will ensure we are well positioned to deliver the increased volumes, we expect in 2022 and beyond.
Just speak to the supply chain issues from the onset of this year the entire automotive industry has been crippled with challenging offshore shipping delays of commodity raw materials and electrical components. In addition to shipping container shortages port congestion at both long Beach in L. A ports are at near Taunton.
Near our all time highs on all key metrics almost all automakers have spoken publicly on this issue of component shortages in the by the administration has also made public announcements about working to address the component shortages deemed one of the worst supply chain issues within the contemporary automotive our automotive.
Sharing space.
Entire industry is unfortunately experienced a slower output of vehicles, we are certainly not immune and have faith.
Bottleneck problems over the past few months, which we are working to alleviate however, we expect the situation to remain challenging in the near term and for the rest of 2021.
Nevertheless, looking at the situation with a glass half full approach. Despite the external circumstances, we face we continue to make the most of things we can control in order to address the battery sourcing issue. We dealt with at the end of last year, we initiated a search for a reliable second source I am proud to share.
Share that we recently signed an agreement with Coulomb solutions, a north American distributor of contemporary EVAR X technology or C. A T L. A global leader in lithium ion battery development and manufacturing.
These new batteries are lighter weight and will reduce our costs, while improving performance.
Well, we can't control some aspects of our supply chain.
Service is an area very much within our control we.
We are growing our customer care team to further ensure we are giving our customers. The best possible support. This includes matching them with the most appropriate charging infrastructure, we want our customers to be fully equipped with what they need prior to receiving our vehicles and that spirit of customer care, we plan to enhance the consumer.
Her experience.
With an end to end approach, which begins with the onset of the sale and continues through the lifecycle of our vehicles. One example, I would like to share is our approach on maintenance documentation, which has always been a priority at workhorse, while working with some of the most rigorous and experienced maintenance providers in the.
<unk> has been valuable so far we are taking this commitment to customer care one step further by creating video tutorials for common repairs.
Our user friendly formats will make it easier for partners and customers alike to properly maintain their vehicles state of the art training best in class documentation and customer support are key enablers for keeping our vehicles on the road.
As part of the broader effort to improve our manufacturing processes and build high quality products that exceed customer expectations. We have appointed Ryan gall to the newly created position of president of commercial vehicles. Ryan is in charge of managing our commercial vehicle division and will be responsible for commercial <unk>.
Supply chain operations of that division, including our manufacturing facility in Union City. He brings us nearly two decades of automotive experience in senior and executive management management positions and has held leadership roles at Jim <unk>, a market leader and developer of an innovative.
Thermal management technologies.
Ryan as previously spearheaded initiatives within manufacturing supply chain, M&A and business development amongst others. Ryan has hit the ground running and is already demonstrating that his skill set and experience translate well to workhorse I'd like to welcome Brian on for a few minutes and give his initial impressions.
Of the team Ryan.
Thanks, Dwayne and good morning, everyone.
First and foremost I want to say that I'm very excited to be joining the workhorse team at this pivotal time in our history, certainly workhorse with its first to market advantage in the last mile delivery space is in an enviable position in the EV delivery truck market.
The additions of Horseflesh drone technology, and the strong IP position, we hold there as well as the complete system integration of EV truck and drone using workhorse as proprietary metro platform presents a very compelling offering to the market.
Beyond having market leading technology. The team I've met here is just a fantastic group of truly dedicated experts and the combination of an innovative set of market leading technologies that are already on the market not just concepts and a top notch team of dedicated experts made the decision to join workhorse and easy one from me.
I am a strong believer in the growth opportunities ahead for workhorse in delivering technology solutions to today's last mile delivery market and even more importantly, the ability of this team to deliver solutions for the rapidly evolving last mile delivery market in the future.
Aimed to workhorse from a global organization that is the dominant leader in its market and I'm proud to have been a part of the executive team that led the organization to the position of leadership in hopes of day I'm very familiar with the challenges of scaling our business and I'm looking forward to bringing my experience in successfully scaling a business.
And.
As well as automotive industry best practices to workhorse as we rapidly scale our own business.
From day, one my priority has been our manufacturing facility in Union City, Indiana.
And able to roll up my sleeves and add my contribution to the vehicles, we produced since I started.
Of course, I'm also focused on expanding our customer base and building on the incredible strategic partnerships. We have in place. Thanks again, Duane for this incredible opportunity and with that I'll hand, it back over to you.
Thanks, Brian.
I'd now like to talk a bit about our sales and marketing initiatives as we gain momentum and witness growth within the operational front, we want to make sure we're making progress on our marketing initiatives as well we are constantly looking for opportunities to market our brand in a way that captivates our prospective customers.
In addition to corporate branding and partnerships, we continue to rollout our purpose built for last mile delivery theme throughout all channels of our social media platforms and even beyond.
As mentioned earlier this year, we are participating in Pritchard companies' purpose built tours that showcased workhorse vehicles in 14 different U S cities to date not only did we do this to exhibit our vehicles, but our team also purchased groceries P. P E and other needed items for charitable groups and schools.
Our mission with this campaign in particular is to bring awareness to companies 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 EV goals. This is very well aligned with the by the administration's support to the E V and clean Tech industry. One example, I'd like to share what is the first stop on the purpose built national campaign Dor in Tampa, Florida over Super Bowl.
[noise] weekend.
We focused on giving back to the Tampa Bay community by donating food housing supplies diapers in school supplies to local nonprofit organizations. During the day event, we raised money from the Tampa Bay Boulevard Elementary school through parking fees at an all day event, which were ultimately donated back to the SKU.
<unk>.
We also delivered thousands of items such as PPE from our workhorse vehicles to those that needed it most.
There was an overwhelming interest and excitement for the two Pritchard owned workhorse vehicles, we showcased and we were encouraged by the publics full support of our mission to electrify the last mile delivery sector through sustainable cost effective technology.
More recently the campaign reached Cincinnati, Ohio on April 22nd and we'll continue and several other cities. This year building the framework for vehicle electrification and emphasizing the positive impact of zero emissions on our environment.
We are witnessing a rapidly expanding base of support throughout this campaign and look forward to continuing to market our best in class vehicles, while making up the Netherlands impact to the underserved in those cities recent.
Recently, we signed an agreement to be a sponsor of F. C. Cincinnati the local major league soccer team that is opening its new stadium in May our logo will be presented in the main entrance, which will now be called the workhorse gate as well as over the electric vehicle charging area workhorse his name and led lights.
We will also be shown during the home games F. C. Cincinnati has the highest attendance of any program in the MLS with roughly 26000 fans per game the reasons for the sponsorship besides the excitement around our MLS soccer team a new state of the art stadium or to introduce potential new customers.
Employees and suppliers to workhorse.
Our electric vehicle delivery trucks, and our truck integrated autonomous delivery drones.
To give a quick update on our pandemic procedures, we continue to follow CDC and local health Department guidelines for cleaning and PPE. As a result, we are pleased to share that we have only had two cases, two new cases of COVID-19 in the last four months.
Now turn to our Aerospace Division, where we have appointed John Graver to the newly created position of President of Aerospace operations. John has previously been involved with leading the development of our horse fly program. Since March 2020, but will now take on an even greater responsibility of overseeing our aerospace division.
He brings decades of C suite level experience at public and private companies engaged in the aerospace industry and I am pleased with the impact John has already had and the value. He will continue to bring to the table. Let me now turn it over to John to get you an update on a horse fly progress John Thanks, Duane Good morning every.
One.
I'd like to provide an update on our aerospace division and our horse slide drone business during.
During the first quarter, we delivered our first horse supply system to a commercial customer.
Our fully integrated system included our horse fly aircraft, our patented ground support and control systems, and especially equipped workhorse last mile delivery truck that seamlessly supports drone operations.
Additionally, our aerospace team successfully completed ASTM testing for our parachute recovery system, our Prs for the horse fly as part of our FAA certification process.
This venture we partnered with Canadian Trs manufacturer a V S S.
Their team and ours did a great job in designing and demonstrating in the core design and functionality of our aircraft and its parachute recovery system.
Our team performed the demanding and mandatory 45, ASTM individuals' liked us in front of a third party testing organization in Rome, New York I'm pleased to share that our systems passed all 45 test on the first attempt.
We continue to meet regularly and collaborate closely with the FAA certification team and our effort to meet all standards of the Faa's rigorous certification and production certification processes. We're encouraged by the progress, we're making and look forward to improving our product by actively conducting tests and trials too.
Sure our high quality offering.
Furthermore, we've also recently joined the Northern Plains UAS test site beyond program, which is intended to ultimately accelerate certification progress and expand drone capabilities as the FAA and commercial organizations work closely together.
<unk> enabled drone operations in the national airspace system programs like beyond our kickstarting the industry, bringing us closer to normalizing unmanned aircraft system usage.
We have a bright future ahead, and our aerospace division and for our horse slide drone business I look forward to updating you again, when we have more to say in the time is right I'll turn the Mike back over to Dwayne.
Thanks, John.
As you all are aware the U S. Postal service issued a press release announcing that it made an award under the N. G. D V contract to a competing finalists. This was not the result, we had anticipated or hoped for and we appreciate the interest of the many stakeholders who reached out to better understand the decision making process.
As well as any potential next steps we continue to operate.
Under our NDA with the U S. Postal service as previously disclosed we requested pursuant to the publicly provided bid process rules additional information from the U S. Postal service and had a scheduled face to face meeting with the USPS on March 3rd we are continuing to evaluate.
Our options and intend to continue 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.
Operator, please provide the appropriate instructions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Formation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the darkies one moment. Please while we poll for questions.
Thank you. Our first question comes from the line of Greg Lewis with <unk>. Please proceed with your question.
Yes, Thank you and good morning, Duane or Steve. Thanks.
Thanks for the updated a vehicle guide and.
You know just kind of curious if you could give us like Oh, My God, a real time update on what production looks like and I guess, how we should be thinking about the ramp low mark.
Towards that 1000 vehicle production as we kind of move through the year.
Greg This is Steve so thank you for the question, yes, so production's going on.
Right now and I I would think of the ramp from a standpoint of.
And the caveat is the supplier and logistical issues that are going on both now and probably even even going into the future of the rest of this year is that if you look at the <unk> thousand.
He could probably break it down into percentages of 10% of those thousand being in the second quarter.
30% in the third quarter, and then 60% in the fourth quarter.
Okay, and then just touching on that a little bit when you when you talk about issues in the supply chain.
<unk> been well.
Public size.
What should we be looking for as kind of the year plays out.
Should we be thinking about this summer and early fall to think about the potential hiccups in that range.
I think what we've experienced for the most part has been less kind of the some parts being short for more of a logistical issues are actually receiving them on time.
So I think it could be anything you know and I think all production companies are really experiencing the same thing as we are is it could be any part that kind of comes up and is it sure is not received in time, So and you know any park and slow down the line. So it is hard to predict what it could be going forward, so but where.
Now were going forward and and I think that's why we're kind of stepping into the second quarter being 10% just to kind of see how some of these supply and logistical issues kind of play out.
Okay, Great and then just one more from me on the on the deliveries and you mentioned the comments about price potentially taking delivery of vehicles earlier as we think about Q1.
You know that hit those handful of vehicles.
Any color on that where all those deliveries the pritchard or were there other customers embedded in that as well.
This is duane great. Thanks for the question I really appreciate it no all of those vehicles word delivered two critcher automotive and I'm going to call. It the pool, where those vehicles are being domiciled in going in for up fitting and so on of those 38 of the 38, we've built to date.
Since the end of the first quarter for the most part.
I would tell you that a number of those as we said in our call will go to prime we're thinking a handful right now but that could be changed based.
Based on their needs going forward as well.
Okay. Thank you very much everybody.
Thank you Greg.
Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Oh, thanks, so much guys let's.
The strategic announcement. This morning does that change your go to market strategy with existing portfolio.
Obviously the.
The EPS relationship.
With your partner is a well known.
Just trying to understand if that changes how you are going to be engaging with them.
Moving customers around the existing portfolio.
Thanks, Colin appreciate the question this is Duane yeah.
We're super excited obviously about this relationship with J P. P. Cohen companies for a lot of reasons why we believe because of who they are in this market the strength that they bring to this market.
It gives us further credibility right not to mention extends our capability as we move forward. So the relationship is going to take.
Our multifaceted approach and the and the comments I made we talked about building together the next generation delivery vehicle, but we're really looking at the overall segment of last mile of course and that includes our drone technology and beyond so first and foremost we think adding a strategic partner like.
J B depot and team that we further strengthen our capability right to bring not just our existing vehicles, but future vehicles to market and strength and again that credibility that others have.
We surround ourselves with good partners, so as you've seen a lot of it and I've talked about earlier between Bell, Canada Paci internally here. In addition to external partners, all I'm going to call them, such as J B Pico and team were doing as well as internally by strengthening our team with the likes of the John Gray version Ryan Gulch.
We're really putting all the pieces together that allow us to actually have the opportunity to get the ball over the goal line. So I would say to you that yes. There are a lot of companies out there who.
At least this is in my mind that when they recognize what we're doing and who we're doing it with that gives them further confidence in our ability to actually do what we say we're going to do.
Great. Thanks, so much and then just.
Shorter term here.
In the next few weeks did you look at your build schedules available inventories that you have on hand can you talk about kind of the weekly or monthly run rate when you're operating net right now and how you see that cadence I'm working for the balance of the quarter.
So one thing, they're calling you were breaking up on US we didn't get that whole question could you repeat that question.
Apologies, yes.
Looking for the weekly or monthly cadence right now on the progress.
Run rate, obviously things are accelerating.
But wanted to get a sense of kind of where you're at now and how that progresses here through the balance of the quarter.
Colin Thanks, I mean, the way I would.
And we're trying to kind of get away from so many per day. So many per month I would look at kind of the 30 day were kind of put out there that we talked about and primarily done in April is very similar for for May and June and go back to we'll give the quarterly guidance again, I think going back to issues that everybody is having its hard to [laughter] you know it's it's.
Somewhat hard for all of us they kind of have.
Give that level of detail. So I'd go back to the 10% of second quarter at 30% in the third quarter and 60% in the fourth quarter to.
It would be the guide as opposed to kind of weekly and monthly guidance.
Perfect. Thanks, so much guys.
Thank you Colin.
Our next question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed with your question.
Good morning, gentlemen, and thank you for taking my questions. So.
A lot of what I wanted to ask has actually been been already addressed but the one thing if.
If we look at the numbers you've disclosed this quarter.
P roughly mid Eighty's.
And you know looking at Cogs per truck.
You know the roughly 25 that you produced in the quarter.
Something around $250000 it shrunk.
Now we know that this is really just the start up phase and there's a lot of extra man hours.
And engineering content in that cost of goods sold can you maybe talk us through the fixed and variable components in there.
What exactly is the materials content opportunity and.
And given that you'd have a new supplier coming online for the batteries is it.
Gonna be a large part of the expected progress on the margin front over the next couple of quarters.
Yeah, Craig. Thanks, Thanks for the question. So yeah. The Cogs was as high like you said in higher than we would want at this point in time as well too so but there are things that we're doing on the battery front that would be something that will be lower cost going forward. We have our our frame we have lower costs going forward.
But as I had mentioned I think in the first quarter.
Those margins are going to be negative all this year and it's gonna be high negative all this year and it is typically for any manufacturing company.
Is starting to go from basically zero to any kind of volume. So the expectation should be it should be a pretty high negative margin all year.
But can you talk us through maybe the debt.
The variable variable contribution sort of backing out the extra man hours on trucks.
You Werent starting in Europe. If you were just say running at a reasonable rate today is your materials supply chain priced where you would be generating positive margins or do you need the benefit of volume to get that out of your supply chain.
Achieving the positive margins that I know, you're working so hard to achieve.
Yeah, So Craig where were stand as our bond at the end of the day. It's it's that's the major cost, it's probably 95% of our cost of goods sold or will be kind of going forward in a target standpoint. So it's it's a bomb where we're at and it's we need material savings and we need the volume discounts. So we're at that stage in our supply life, where.
We're ordering in small volumes were not getting those volume discounts were not getting payment terms like we like yet you know we need to lineup that the suppliers have had people that quality yet we're doing all of that but we're doing that at the same time as they're trying to produce trucks. So yeah. So it didn't but going back to your question of what's fixed and variables.
It's not going to be a labor issue at the end of day, we gotta get bombed down.
Understood understood. So then you know looking backwards over the last several years workhorse has a great fleet of trucks out on the road millions of miles and experience.
And we're just going through the teething pains now this COVID-19 environment made it much worse, but you know of getting a new generation of trucks out there.
Can you maybe talk a little bit about the the legacy buyers of your of your existing fleet of trucks, that's rolling around still today are.
There are many of them coming in and taking a serious look at the potential for orders what do you feel about the feedback that some of them are giving about the update of the designs and.
Could we see some of these.
These are big buyers potentially stepping with large purchase orders.
Yeah. That's a great question. This is Duane I'll take the first stab at that yes, we do get routine feedback from the legacy guys as well as the newcomers as you know we have been really well focused on expanding.
Our reach through these dealer network channels and those things so that we're not.
Putting all our eggs into one basket scenario as you know, especially with all of the competition, that's coming out and being introduced but I would tell you that.
Our particular segment with 1000 cube vehicle and even larger right. We are I won't say, we're the lone player there, but we are clearly leading the way in terms of not just vehicles on the road with millions of miles and now the second generation ready to take to the roads.
But we're also demonstrating the integration of our other technology, whether that's software related <unk> drone technology, which continues to differentiate us and we're making good strides if you will in creating this single focused last mile delivery solution, rather than just building electric trucks.
That would be inserted into a fleets system. They want much more than just an example of.
A truck that they charged overnight, they're looking to impact their business overhaul. So they can truly reduce their operating cost increase their revenues and ultimately have that compete at competitive advantage they need to grow their market share. So that all comes back to providing a complete solution rather than components in that.
Solution and I think that's one of the keys of differentiation workhorse from the competitors today is there I don't want to say, they're just producing trucks were not just producing a truck we are producing.
A well rounded set of tools, which allow these fleet customers both legacy as well as the new commerce right to compete more effectively in the marketplace.
Great and then last question if I may.
Guys are looking to put away that thousand trucks.
In your guidance can.
Can you talk maybe a little bit about geography.
And the impact that some of these job voucher and other.
Towards that.
They're always very helpful to the customers you know do you expect this to be really sort of California, and New England, New York centric given the availability of vouchers or are there other geographies that you expect to be particularly strong field over the next couple of quarters.
Hey, Craig it's a good question I think that initially what every our customers have told us somebody ideally like to have it in California, obviously.
And probably New York to some extent tube low I think we've heard California. Most is and I think lastly, you've heard as June as the time periods that maybe the voucher program will open just because ideally if you can get a $45000 credit you want to take that first having said that you know pritchard all over the place from a standpoint of marketing and gone to 20 different cities and get solicited a lot.
Interest so to extent debt you know, California money is not there I certainly feel that there is interest in a lot of states. Besides California that'd be interested in trying out in price right. Obviously wants to go to.
Canada and like the big major cities and actually to start driving the trucks and market them as well so yes.
Yes, if if anybody can get a price cut youre going to try to get that with the voucher, but I think it was <unk>.
Interest over North America here.
Understood. Thanks, again for taking my questions. Congratulations on the progress on the production side.
Thanks, Great. Thanks, Craig.
Our next question comes from the line of Mike <unk> with Colliers Securities. Please proceed with your question.
Hey, good morning, guys.
I just wanted to first start off with a question with them with something that Craig asked this if off with some more detail on that can you give us update as to your backlog as of now have you gotten any major or decent sized orders during the quarter.
And maybe secondly, with the Pritchard program going from this from place to place suite to suite doing lab test drives and demos have you have have you seen any orders for.
Their vehicles for some of the more local businesses. So kind of you know numbers around some of the conversion activity in a quarter it would be helpful.
So we didn't receive any new orders from like particular pride or EPS or is it during the quarter.
Having said that prichard has been around to all those cities that we've talked about they've given us all positive reports.
So you know I don't think they want us to announce exactly kind of what theyre doing with their customers and how they're approaching or how they're going to deliver them, but you know again I would say, both pritchard and pride in not only eager to get trucks and get them out on the road, but to get them out and start marketing price for example.
It really only wanted truck starting in July but they asked them for three months early actually hit the road with them. So we anticipate you know in both cases that they'll get them out on the road and that will drive not only their orders, but also price future orders from us down the road.
Okay.
Hmm.
And then I wanted to ask about the deal.
As announced with Poindexter can you give us some of the some of the terms behind that deal is it going to be a profit sharing arrangement once it once.
Vehicles made and do you know if if point after or you know Morgan Olson.
It's still free to work with other EV companies for their efforts.
I guess this is Duane I'll go two ways with that one is yes, there will still be able to work with other manufacturers that's important to their business, but they are able to be I'm going to call. It chassis agnostic right going forward. So that they can meet the needs of their customers, but they're looking at their future.
Electrification and beyond electrification is goes back to what I said earlier in my comments about building a complete last mile delivery solution as opposed to just a truck.
That meet certain needs in that marketplace. The other part of that is this collaboration are the strategic partnership between the two companies can take on different looks and feels based on the mission at hand, as I've mentioned collaborating together to build the next next generation delivery vehicles, right and I say vehicles.
Because again, that's more than just a truck it can be trucked in drone technology trucking droid and beyond right.
But it also allows us to expand upon that relationship with a different pipe project, which would be administered under different type contract for whether its contract manufacturing or other supply chain related issues, where.
The two companies, putting their strength together to I'll say optimize or maximize the opportunities through the supply chain the maintenance channels and all of the things that exist today. So the relationship isn't just a single dynamic. It's very it's designed in the current agreement that we signed is allows it to be a very.
Broad individual contract based.
The ability to do different projects over time.
Okay.
I also wanted to ask about kind of what caused you to add an additional layer of management here when you hired the two.
Group presence.
Just one you already have a CLO I'm kind of curious who reports to whom and what.
What are they going to add or is it more of a sales focus there wasn't more of an engineering focus what do you hope to accomplish by having an extra layer.
I guess, what part are there going to be covering of the process here.
Yeah, Great question, and I'll start that answer and if Steve or any others want to jump in they can but the reality is right. We have Rob our COO who is as.
In effect our lead engineer, we have you know lead engineers and so on on our projects, but giving Rob and opportunity to I'm going to say the further focus directly on engineering and our three and five year plan. It looks like you know what does our technology play and look like what are the products. We're talking about these relationships with companies like J B P.
You know they require a high level hands on understanding of what what are the platforms that we need to be building for the future, adding John and Ryan of course are are of particular focus because of their expertise and John's case of the aerospace world his years as a pilot.
The years under his belt with our current aerospace team and our ability to actually bring a horse fly to market as a one integrated product with trucks, but perhaps more importantly away from that integration as a standalone product, which it is designed to be as well. So John brings that years of C suite level.
And aerospace background that.
That he can navigate through the FAA type certification process and get those products to market much more quickly and a group of US together splitting those responsibilities. The same goes for Ryan Ryan goes Ive, even deeper in the truck side of understanding not just supply chain and production, which is our number one task.
And I think Ryan I might have mentioned it in his call. He started his focus on Union city in our production facility and getting it up to speed more quickly by working with our other partners like Hitachi and Bell, Canada knows guys, but Ryan brings the ability to strengthen the sales side of things the marketing side, the M&A side and so on but again.
His his background in automotive has decades of experience in automotive and his ability to navigate the supply chain and understand and having been through issues in the supply chain before just gives us another level of expertise where both of these guys have P&L responsibility. They both report directly to me as CEO.
And we will actually improve our ability to do what we are committed to do for our shareholders and our employees and all of our investors as a whole.
Just a follow up there so.
So it sounds like you've got some more hires to come given the growth in the production should we be looking at increases from some of your structural costs, your R&D or sales and marketing costs along with reductions over the next few quarters can you just any kind of you know.
Any kind of a range, we should be looking at for your overhead costs.
For the rest of the year here.
Yes, I think if you look at like the past quarters, you'll you'll see increases both in R&D and SG&A as we talked about we've hired we went from a 100 I want to say at the end of last year to about 240 people now total in the company now there'll be additional hires but I think for the most.
A lot of them have been hired.
At this point.
And there's some key positions filled Phil yeah, we're stepping it up a little bit both on R&D and SG&A.
Okay.
Again, thanks, so much great work.
Thank you Mike I appreciate it.
Our next question comes from the line of Chris South or with B. Riley. Please proceed with your question.
Hey, guys. Thanks for taking my question here, maybe you could just provide a bit more color on the J B Pico agreements and what does that mean, so it seems pretty broad base.
Potential for you guys to help them out with the chassis and other areas in them to help you with the body, but I'm just kind of curious.
You mentioned development of next generation vehicles here do you.
That's kind of a timeframe, where you think youre going to have kind of vehicles ready to go with them.
22, 2024 type story, maybe kind of just framing where do you see the opportunity kind of developing obviously, there's multiple kind of projects you could be working on together, but wanted to get an idea of timelines that you guys are looking at there.
Well, Yeah, I would tell you just from the sense of the competition in the marketplace. We're always looking to I'll say a speed to market as an issue now at the same time quality of what we deliver to the market is all important safety and quality and reliability. So the timing on that would be based on how do we.
Integrate each other into our current and future plans as they exist today and how do we have.
Adjust our navigate through those plans that we would have had going forward than they have going forward. So time.
Time is of the essence from a competitive perspective, but rushing something to market without having a complete I'm going to call. It complete system or the quality that we're looking for is something that were.
That we're seeking to stay focused on so we don't shoot ourselves in the foot as they say Timewise you know again, we're not talking multi years out we're talking about how quickly can we do it do this together and it's not just build that new product as you said right. There are many fronts on which we can work together and this is much.
More than just being a chassis provider with a body company that's putting bodies on chassis. This was looking at that three and five year business plan together. The technology is going to be required three years out four years out five years out and beyond and how we put ourselves together in a position for success going forward.
No I understood and definitely seems like a great partner from that respect just given their size and scope of their operations. So maybe you talked about a thousand vehicle production target for this year and get the cadence should we expect deliveries to have a similar.
Total number and cadence.
And then just maybe touching on kind of the customer bases as all of 2021 sold out with key customers Pritchard Pride, maybe EPS and there are there other customers you need.
Obviously, the backlog stands at much more than that but I'm just kind of curious from the timing of the order backlog as you know.
Some of the 2021 is now sold out at this point or.
Or how are you speaking to customers as far as potential new orders the timing.
Chris Yeah, So I would say the cadence for deliveries can be the similar cadence for production.
And I think from a standpoint of the backlog and how it compares to the <unk>.
Production schedule deliveries, yeah, we price.
Let's take pride of it to some extent because there is a multi year order have you take pride out we had 1800 backlog and and so yes. The thousand will kind of be trying to eat into that backlog of 1800.
And but we have openings I would say in 2022, and I think we're actually trying to use that to a E sales advantage because I don't think there's a lot of companies right now that I can say look you want to get on the schedule. You know you need to get on the schedule now and you can get production and delivery in 2022.
Okay. No. That's very helpful. And then just the last one on you mentioned.
First horse fly to a customer who is the customer you're working with there kind of what is the scope of the program assumed for kind of a trial a trial pilot type program there.
Hey, this is John Graber. Thanks for the question appreciate it.
Got NDA with the customer so I don't think we can define them, but there's a lot of video out in the marketplace. You can go see of what were flying and how we're flying and that's representative of what we're doing.
Okay, and there are other customers too Chris I'll add there are other potential customer they should say, we're talking to right now that are blue chip customers as well on the drone and drone truck side I think it's fair to say that.
Uh huh.
The.
The UBS guys and Verizon guys used our product in CES keynote address that's all public record you can see that and since that video appeared we have gotten increased interest in our <unk>.
Integrated solutions in the commercial side of things.
Okay, that's great to hear I'll hop in the queue. Thanks, guys.
Okay great.
Our next question comes from the line of Craig Here with Tuohy Brothers. Please proceed with your question.
Good morning.
Spending on Craigs gross margin question.
Understand the positive margin is a function of volume and staffing and supply chain economics.
Given you envision healthy negative margins through all of the year.
But production light ramp up to 200, plus vehicles, a month by the fourth quarter.
Do you envision staffing and skilled.
The vendor orders driving you to breakeven gross margin, possibly by mid next year.
Net that is our hope you know from 2022 is that sometime mid year that certainly I think we have to get over 200 per month to kind of get to that level breakeven. So but again. It is all not all but it's primarily bomb related you know and so we have debt.
Have orders out there and probably orders with different vendors of you know 2000 to 3000 and looking down the road. So yes, I mean, I think our hope would be sometime next year in 2022, we'd be breakeven I can't tell you if its mid 2022 or not but certainly 2022 that is certainly our hope some months.
Great. Thank you and then kind.
Kind of back to the the horse flow.
I understand you have the non disclosure Kent can you elaborate on whether it's a north American order and whether you're getting material entrust outside of North America for that product.
It is a north this is John graber, it as a north American order, we have not pursued anything out of North America, yet we're in as I think everybody knows certification pipeline with the FAA and our plan is to gain that certification then go get a ASO certification then.
Go get transport, Canada, and the Dominoes began to follow based on what the FAA allows us to do so we haven't looked overseas yet I am comfortable that when we do the product will find a home.
I Gotcha, I guess I was thinking reverse like with biotech, sometimes when things aren't approved by the FDA in America some.
Some overseas markets will take it sooner rather than later.
But it sounds like its the reverse with aviation debt.
I need to start with the FAA.
I won't tell you you're wrong about that concern in our industry on the aerospace side is whether or not the United States will keep up from a regulatory point of view.
Compared to a ASO or Brazil, or Australia, or New Zealand, they're our nations that are making things faster in this space than we are.
We've chosen the FAA route because we think once we get it.
It opens the doors more quickly around the world, but it is an absolutely fair concern.
And one last question on that day.
Do you have any sense or body language from potential customers as the weather. The primary interest is around an integrated.
Platform, what the EV truck and the horse fly a product or whether the UAV might be more of a stand alone product over time.
So we have we've got a 10 year plan for unit sales and the way. We think about then I'm not going to get into the total units on this call, but the way, we think about a 35% or so of the <unk>.
Line sales, we would build in 10 years would be associated with drugs.
And if you look out in the marketplace you can see that there are tens of thousands of applications for business to consumer but the industry is thinking about their our report after report that show it being multibillion dollar business by 2024, if you look at the <unk>.
As 2020 aerospace forecast, they said that they cannot forecast the hockey stick that they see and small parcel delivery because they can't figure out what it's going to look like it looks so I think from where they used is phenomenal.
So thats pretty heady and I'm not going to say that we have that robust view.
But if you think that there is a is a market here and we do there's not a reason in the world and our products won't have a leading role because we have the capacity and we're gonna be safe, we're gonna be reliable and we can carry a meaningful payload a meaningful distance.
Great. Thank you.
Yeah.
Yes, Sir.
Thanks, Greg.
Our next question comes from the line of Thomas Boyes with Cowen. Please proceed with your question.
Okay. Thank you for taking my question I just had one quick one I noticed there was day inventory write downs like 30 or $360000. Just wondering if that was from obsolescence or if you can get any color on that thank you.
Yeah that was from obsolescence.
You know you go through a different design.
<unk> types and some you know don't always work out and so that's really where it came from.
Is that specific to the.
Body or <unk>.
<unk> as far as battery.
Was there any break down there or color.
It was kind of it was kind of both of those issues certainly related to kind of the C 1000.
Okay.
Great. Thank you.
At this time this concludes the company's question and answer session.
If your question was not taken you may contact workhorses Investor Relations team WK H S at Gateway IR Dot com.
I'd now like to turn the call back over to Mr. Hughes for his closing remarks.
Again, I'd like to thank everybody for joining us on our call today and for all the great questions from the analysts that follow on my own.
Especially I want to thank our employees our partners and all of our investors for their support. We appreciate your continued interest in workhorse and we look forward to updating you on our next call. Thank you operator.
Thank you for joining us for Workhorse. This group first quarter 2021 earnings Conference call. You May now disconnect your lines.