Q1 2022 Workhorse Group Inc Earnings Call
Ladies and gentlemen, greetings and welcome to the Workhorse group's first quarter 2022 Investor Conference call.
As a reminder, this conference call is being recorded.
It is now my pleasure to introduce your host workhorse group's group's thrice president of corporate development and communications Stan March Sir you may begin.
Thank you Doug Good morning, and welcome to all of you joining us on today's first quarter 2022 results call before we begin I'd like to note that we have posted our results for the first quarter ending March 31, 2022, as well as an accompanying press release.
And presentation.
The relations section of our website.
Also released our 10-Q this morning.
We'll be tracking with posted presentation during the call today. So please call either from the link in the press release or to our website directly and with that let's get started.
Turning to slide two joining me on today's call are ripped out our CEO and Bob <unk> our CFO .
Moving to slide three we have a straightforward agenda today. Following my brief opening remarks, I'll hand, it over to Rick who will give you an update on the progress.
Made on our strategic and financial priorities for our first quarter of this year.
I will then walk us through our financial results for the quarter and touch on our 2022 guidance. We'll then take your questions.
Moving to some housekeeping items, then our disclaimer on slide four some of the comments. We made today are forward looking and therefore are subject to certain provisions and subject to risks and uncertainties.
The full disclaimer statement and our Form 10-Q, and other periodic filings with the SEC as well as on today's press release.
I'll now turn the call over to Rick.
Thanks, Dan and good morning, everyone. We appreciate you taking the time to join us today.
Turning to slide five our first quarter was exactly what we expected it would be a lot of hard work, we put our heads down.
Execute on our plans and accomplished what we set out to do.
When you're a rock solid foundation based on our stabilized fix and grow a business model.
Terms it was all about blocking and tackling.
A key element of our progress just get Tony to successfully find the right people to strengthen our organization.
We further built out our highly experienced leadership team as well as physically in past, our engineering resources and technical expertise.
We consolidated and relocated our headquarters and shared Ohio.
The transformation in Union city is tracking to plan.
Racism that every milestone on the new product development roadmap, we laid out last quarter, we also strengthened our financial position.
As a result, we are right on track and executing our revised strategic plan to deliver a family of class III six electric vehicle last mile delivery products, both on the ground and in the air.
Moving to on slide six.
We continue to make progress on our initiatives across what we call our sixties people.
<unk> processes partners politics and profits.
And that's in a balanced fashion in these areas is critical to establish a strong foundation to achieve our vision to be a pioneer in the transition to zero emission commercial vehicles.
Our team is incredibly detailed oriented as it relentlessly focus day in and day out on strictly the building blocks of our foundation.
We are confident the plans you've laid out and the progress you're making on these initiatives will enable us enable our transition from a technology startup.
Intuit ambitious commercial vehicle Oems.
We also believe in all the industry trend or that we will continue to benefit from strong industry fundamentals and tail is driving the transition from ice to EV powered vehicles in our sector.
Let me now give you some important details about the progress we made during the quarter.
Turning to slide seven.
Let me go through the key steps, we took in delivering on our strategic priorities and building a strong foundation for growth.
First this quarter, we further built out our experience would tell a leadership team we have hired a new CIO, we have more than 30 years of supply chain and IP leadership experience across the automotive industry at both the Oems and tier one suppliers.
He is also that ITT is in the government sector as well.
We've added a new attorney as corporate counsel brings five plus years of a business and commercial loss brings to the team.
We also have the search is well underway to hire a VP of sales and marketing with significant commercial vehicles and transportation industry experience.
Operationally, we have hired a director of quality with more than 35 years of quality systems experience at large Oems employees in powertrain and final vehicle Assembly and supplier quality at all.
Lastly, we have hired a director of production control logistics, who has 20 plus years of supply chain and lean systems experience at major tier one automotive suppliers.
Additionally, we have rounded out our principal engineering Rex we call them subject matter experts and now have it in place for chassis electronic control and body design work.
We look forward to benefit each of their unique perspectives and insights as we execute on our product roadmap.
Moving to slide eight I wanted to talk a bit about the readiness of our facilities last quarter, we opened our new vehicle design and test the technical center in Wixom, Michigan to expand and enhance our design engineering and testing capabilities.
The center has a very fruitful baskets the workforce, we have greatly expanded the breadth and depth of our engineering talent, which has already begun to enhance our designs and we still have in the budget 15 open personal requisitions for engineers.
The equipment will be installed wafer by fourth quarter of this year radio sites to a fully functional level by the end of the year.
We continue to make significant progress in transforming and expanding our Union city, Indiana plant into a world class manufacturing complex.
As you can see on slide eight and the images in the middle of the left hand side of the slide the manufacturing plant is re list repairs of rehabilitation are on track and near completion.
They end up in a blind dynamometer is expected to be installed in the facility will be one of them is everybody. Obviously, the Q3 of 2022.
We are often asked how we can get to volume production with only a $15 million to $20 million range are best at levels, we have been discussing.
Short answer is because we did not start with a blank piece of paper, we already have a well built plant coupled a rich history of manufacturing.
We also reached an agreement in the quarter to take over two additional factories on our property further expanding our manufacturing floor space and footprint.
As an indication of how important these types of assets. The cable they are in the EV space, we have been approached by several firms, possibly undertake contract manufacturing for them at our workhorse rash as early as this fall and into next year.
We will carefully evaluate these opportunities and we'll update you when the when there is more information to share.
As I mentioned on our call in March we look forward to hosting many of you at our Investor and Analyst day event in Union City in the fourth quarter. So you can see firsthand, what we're now calling the workhorse rash and also get a chance to drive our new generation of electric vans and trucks.
We're also pleased that we completed the consolidation and relocation of our headquarters together with our advanced technology team and our new facility in Sharonville, Ohio.
We are already realizing improved efficiencies and teamwork across the organization.
The new prototype shop at outlet locations are under construction and we expect occupancy to be begin in Q3 of this year.
Finally, we're in a problem the relocated our aerospace team into a larger space than base in Ohio, We plan to start production in 2023.
In summary in summary, we have materially reposition and significantly upgraded our infrastructure in the last nine months.
Moving to slide nine let me now provide an update on our progress on our on.
On a revised product portfolio roadmap to deliver a family of electrical electric powered commercial vehicles across the class III the classic segments.
Countless exactly what we set out to do during the first quarter.
As we've previously communicated our new product portfolio roadmap includes getting existing C. One thousands repaired and back on the road.
Before building out and retiring them out in parallel we are focusing our engineering teams efforts on developed two new truck chassis platforms at 22 to 24, while also partnered with Green power on a third vehicle to raise the product gap created by the decision to limit future C 1000 production.
I would also like to highlight that we have recently signed a referral agreement with charge for to support our customers honoring electrification journey as they transition to electric last mile delivery vehicles.
This partnership connects workhorse covers with North America's largest charging network.
Turning to slide 10, let me.
You walk you through the current status of our major product platforms.
Last quarter, we completed F N B S. S testing for the C 1000, and noted that several corrective actions required to complete the full vehicle certification.
We also fully tested the E powertrain reliability structural durability and the payload capacity, let's see 1000 and identified several necessary corrective actions required a variety of safe reliable vehicle to our customers.
During the first quarter, we execute on these corrective actions in all of the DFS changes have been finalized and released by our engineering team.
Francis Bezel design and vehicle build material releases are now complete.
Even with a bit of a supply chain exposure and Shanghai. We are on track to return vehicles to service starting in August of this year and repair all 161 currently manufactured vehicles by year end.
We plan to manufacture at 50 to 75 additional C 1000 by the end of the year from inventory currently on hand.
We are working closely with a few customers to sell a 100% other vehicles in 2022.
Of course, we will provide service and repair prior support after retired them out later this year.
Turning to the future and the W 750, and W. Four C, which will serve as a bridge the gap between the <unk> thousand product and future production of the W. Five six and W. Three four platforms.
Workhorse in Green power finalized several month absence of the base vehicle and production of the first year is already scheduled.
I believe our strategy to fill supply chain early for these vehicles is paying off for us.
We plan on taking delivery of up to 1500 chassis in green power completing the manufacturing process and delivery boat cab chassis. The W. For RCC and finish stepped out W. Sub 52 customers in the United States and Canada, beginning as early as the third quarter of 2022 and throughout 2023.
We are currently here in California at AZT Expo in long Beach, where the workhorse team is introducing the W. Subsidy stopped them and Brian ride and drive with a fully loaded 5000 pounds Duffy for cab chassis vehicle.
It'll be the first time since our March 1st announcement that we will have dental vehicles for customers right in and review.
We are excited to have our first purchase orders for this vehicle families all of which have successfully achieved California H approval.
We expect to realize further sales activities now that customers can see drive and fully review the vehicle.
If you have to be out here at the show. Please stop by the Booth and take a look we'll take a ride we look forward to continuing to collaborate with green power and delivered the first trucks from our Union City plant later this year.
Turning to the W. Five six was related just last quarter as the first new workforce fully designed chassis platform.
The Wi Fi six will serve the class five and six six delivery step van and truck market segments that builds on our Workforces experienced building chassis systems for these classes of vehicles.
The Wi Fi six is our shortest path to a homegrown design tested an economically viable best platform.
It will come in three wheel sizes address it a tam we estimate to be approximately $1 7 billion per year.
We continue to be all timing requirements and milestones for the beginning of productions the vehicles in Q3 of 2023.
Our engineering and design teams have made significant progress in the Wi Fi six design.
Sourcing decisions and contract amendments with proven commercial vehicle industry as tier one suppliers are already in place for more than 50% of our platform bill of materials.
We expect to finalize design intent with supplier partners of ours are critical electrical component chassis and suspension product sourcing decision by the end of Q2.
This will ensure we have a production test vehicles ready for testing in Q4 of this year and be in a position to complete testing and start full production on time in Q3 of 2023.
Designing testing and producing the Wi Fi six is the number one program prior year at workforce I manage those program to use myself on of course on a monthly basis, we look forward to continuing to update you on our progress on this critical program every quarter.
Now I'll turn to the W. Three four which we as we mentioned in our last call in the new class III and Ford chassis that build on the key technologies introduced by the Jam and the C 1000 vehicles is.
This vehicle feature accessible low floor platform with improved ride and handling the efficient lightweight systems and advanced driver technology.
Estimate the addressable Tam for this segment of the commercial vehicle industry to be about $10 four at $4 billion per year.
We continue to expect to beginning the production in 2024, which means we'll benefit administered tailwind of new wireless standards and emission standards take effect for commercial trucks and southern regions of the country.
The bottom line is that we have kept all of the program on time and on budget, while adding skilled staff to ensure we continue to hit our aggressive milestones.
Turning to slide 11, we are continuing to invest in our aerospace business and drilling technologies.
We achieved several important milestones that we reached during the quarter.
A very important year ahead of us in terms of product development.
Last quarter, we announced that the federal Aviation administration provide us with approval pursue tight certification.
The horse slide tier of delivery drawn in 2022 'twenty three we continue to fly under part 107 certification.
We are in the final development and testing phase for our vehicle launch drones with industry, leading payload range and safe delivery capabilities.
Building on the success, we had last quarter attaining celebrated for the US Department of agricultural you're also pursuing additional contract and grants for the USDA to provide monitoring data procurement and analytics as artist at the demonstration projects.
Through our dedicated development effort. We also designed a market leading package delivery, which and our continued extensive field testing.
We are currently flying in North Dakota, and Mississippi to support government programs.
On the staffing front, we continue to add engineers and pilots and team to ensure we can deliver on our for our customers.
We're excited about the potential for market expansion, we are experiencing in our drilling operations and are exploring additional projects with both federal and state governments as well as larger retailers.
With that I'll now turn the call over to Bob to discuss our financial results for the quarter.
Thanks, Rick, let's turn to slide 12.
Our results illustrate the progress our team continues to make to strengthen our financial position and drive greater operating efficiencies, which will allow us to execute our product portfolio plans to deliver value for customers and shareholders.
Sales net of returns allowances for the first quarter of 2022, we recorded a 14000 compared to 521000 in the first quarter of 2021.
The decrease in sales was primarily related to the decrease in volume of truck sales in connection with the previous recall of our C 1000 vehicles.
Cost of sales decreased to $3 9 million from $6 2 million in the same period last year. The decrease in cost of sales was primarily due to the decrease in volume of truck sales and costs associated with the initial production of the E series vehicle platform.
Selling general and administrative expenses increased to $11 nine months $6 9 million in the same period last year the.
The increase in SG&A expense was primarily driven by an increase of $2 9 million in employee related expenses, including equity compensation from increased head count and the appointment of our new executive leadership team.
Additionally, there was $2 1 million increase in professional services related to legal expenses. The increase are partially offset by a $1 4 million decrease in consulting fees due to the company's initiative to reduce reliance on external resources by hiring internal resources.
R&D expenses were nearly unchanged at $4 million compared to $3 9 million at the same period last year.
Net interest expense was $2 2 million compared to $14 9 million income in the same period last year.
The decrease in interest expense, primarily driven by a $4 million increase in fair value of our convertible notes in Q1 as compared to a $15 5 million.
Increase in the fair value of the prior year.
Additionally, we recognized a gain on the forgiveness RPT turned out during the three months ended March 31, 2021, which is nonrecurring during the current period.
Other loss decreased to no loss compared to $136 million at the same period last year decrease in other losses related to unfavorable changes in fair value of our prior investment endorsed town Motors Corp, which was sold entirely in Q3 of 2021.
Net loss was $22 million compared to a net loss of $120 million. The same period last year loss from operations in the first quarter was $19 million compared to $16 million the same period last year.
Turning to slide 13.
As of March 31, 2022, the company had approximately $160 million of cash and cash equivalents.
On April six 2022, the company entered into an agreement with Hydro capital ships are out 4% senior secured convertible notes for approximately $29 $7 million of the company's common stock.
This transaction would eliminate the remaining debt from workforce balance sheet and we're really excited about what we've accomplished all this while strengthening our financial position has been a key priority.
The deleveraging complete we now have additional time flexibility and ability to focus our full financial resources on key investments in our people in the business. So we can execute our plans.
Our capital spending plans for 2002 2022 remain unchanged at between 25% to $35 million.
Slide 14 covers our 'twenty two guidance, which we are reaffirming.
As we continue our planned progressive ramp of manufacturing as soon as the supply chain visibility remains unchanged.
Do you expect to manufacture and sale of at least 250 vehicles and generate at least $25 million revenue.
Our guidance for the year is also back loaded so we're still not expecting to produce a new vehicles in the first half of 2022.
Yeah.
I'll now turn the call back to Rick Rick to wrap up the call.
Thanks, Bob I want to briefly discuss our Q2 priorities on slide 15.
We intend to complete the critical executive level staffing here at workhorse.
On commercial engineering supply chain and it systems.
All of this is significant hires you've made over the past nine months.
We will execute on our product roadmap timelines, we will continue the expansion and the renovations at the workhorse rash in order to launch products in Q3 of this year.
Tim will begin to both acquire transfer installed test and validation of equipment in both Michigan and Ohio Technical centers.
We also expect to complete the first phase of a common system deployment in terms of production late.
Lean systems, ERP, and HR and systems and finally, we expect to secure customer order commitments for our new products W. Some 50 W. Foresee and the limited number of C. 1000 bands, we expect to repair and build this year.
Before I turn the call over to Q&A I wanted to reemphasize some uniform performance from our call today on slide 16.
First we are doing exactly what we said we would do to build a rock solid foundation of the company.
And that always starts with people and a strong balance sheet.
We have hired experienced capable executives critical positions.
<unk> supply chain and technical capabilities, and we solidified our financial position by removing all of that from a balance sheet.
Second our strategic product roadmap plan is on track and we made important progress during the quarter.
We will be the pioneers in the transition to zero emission commercial vehicles targeting specific classes of vehicles and the last mile delivery segment.
And third based on direct feedback we remain confident in the opportunities ahead to deliver electric vehicle. So our customers that wanted that they want and in turn will deliver long term shareholder value.
That concludes our prepared remarks. Thank you again for your time. This morning, we look forward to continuing to update you on our progress and we're now ready to open the call for your questions. Doug Please provide the appropriate instructions.
Yeah.
Operators are still there.
Yes, I am sorry, I was on mute.
Ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Colin Rusch with Oppenheimer <unk> Company. Please proceed with your question.
Thanks, So much guys could you talk a little bit about the customer dynamics now that you've got a broader portfolio of trucks, you've shown some evidence here.
These things just talk about how much leverage you're seeing with those customers and what type of demand that you're starting to see with those folks as you move forward with those relationships.
He said about the customer dynamics.
Yes, the customer dynamics, yet our relationships and how broadly they're exceptional.
So Richard vehicles.
We've had several meetings with our customers some of the original cost as we have for the C. 1000, we were able to bring them into Union city as you remember to demonstrate with VW for C. C.
And then drove the vehicle they gave us positive feedback that actually gave us to rats.
Input on how well we think we can sell the cab chassis version of the W. 15, So that gave us very good confidence we had a meeting with one of those customers as recently as last Thursday, and the Midwest, they're looking forward to buy.
Several hundred of those vehicles outside.
This week, we have first just the first time you demonstrated a W. 750, we showed it to our board of directors last Tuesday in Ohio, we shifted out to California cleaned up over the weekend <unk> display we have a lot of traffic already opened the show up last night, a four o'clock. So we have after the show is this week, we have a plan for five weeks, where we're going.
The vehicles around California, and then to a couple of areas in the country to show the customers. They can experience. It that so I think give me about 45 days I'll be I'll tell you a lot more.
But pretty much the feedback we have is that we're focused in the right areas class five six class III for last mile delivery segment, that's not too crowded to be quite honest.
Even though we had a setback on the C. 1000, we think we can still be one of the first to market in that segment.
Okay. That's super helpful. And then just in terms of the people investments that you're making right now certainly what we've seen is an awful lot of leverage from software at the operating system level from the vehicles I'm just curious.
How much investment, you're making and software engineers are.
How you're approaching that that challenge.
Challenge of getting the operating software for these vehicles really tuned up.
It starts with the market.
Great question I think the one of the secrets is not just the hardware on these vehicles is an ex Tesla driver I understand how important that software isn't that vehicle, we are lucky, but one of the good things we had on both the EJ. They havent see 1000, when we had the Medtronic system. When we get feedback about every 10 seconds on every vehicle we have the ROE I think some of the each ended.
On the road now from 2017 18, we still continue to get that feedback pretty reliable system. We have out there. So I think we would double our investment in software engineers since I got here I know, we have for sure on aerospace I mean, you're almost quadrupled our aerospace and we've almost doubled on the software side as well.
So we understand that as an important and that's one of our key areas, where we've got some open racks.
The battle with the fight for talent, especially in the software side of the house is really hard and we Gotta go out make sure we get our fair share of a good qualified people.
Okay. Thanks, so much guys.
Thanks Carl.
Yes.
Our next question comes from the line of Jeff Osborne with Cowen and company. Please proceed with your question.
Yeah. Good morning, Thanks for taking the questions. Just a couple on my end I was wondering how can we think about the financial ramifications of the remediation of the 161 trucks in the second half of the year.
Yeah.
And to what you intended to produce the 50 to 75, how should we think about modeling that.
Well I think this is Bob and Jeff.
Hi.
The first of all with the write down of inventory that we took in the fourth quarter.
We basically any of those trucks that were built you know we had a write down to fair value.
Which was which basically you can look at sell price per value and the cost to fix and then we also said that we've had some cost to go into fixed those as we move through the quarters here. So I think you know modeling those.
The reality is the revenue will be there, but the costs will probably approximate the revenue on the C. One thousands.
I wouldn't expect much contribution there.
From a P&L perspective, however, obviously from cash perspective.
Very accretive.
And that's how we got it.
And just to be clear, but that's the 161 50 to 75.
Correct.
And then the 50 to 75 I assume those would be negative gross margin to start and then as we move into 'twenty, three and volumes ramp up the.
The gross margins would turn neutral to positive or how do we think about the mid term trajectory on that separately.
This 50 to 75 C 1000, I think it's a very similar story.
Parts on hand are obviously written down.
Spend some more so it might be a little bit negative as you said.
It shouldn't be dramatic.
I got it.
And then as you've had go ahead.
You have to see what I'm, sorry should be fully built out and behind us by the end of the year and there was a transition year in the third quarter, we start <unk>.
<unk> seen a shifting the W. For Ccs and then in the fourth quarter, we'll start shipping <unk> seven fifties as we've got to finalize the design finalized now and sources all down to sub 50. When you started out production in early fourth quarter. So those are positive gross margin side vehicle sports.
That's great to hear maybe just a last modeling question is on the Opex front, you've certainly added a lot of people and had a lot of shuffling around.
Would you. If this were a baseball game are we in the seventh eighth inning of that is the current sort of run rate with maybe some modest growth in the second half how we should think about it or whats the opex trajectory.
Its executive executive level people will directly report to be equal basis, where the eight day when he had a good sales commercial leader here that person will then get the higher the regional team you can take a look at the country that needs to be someone on the west coast up and down the I five corridor and easy someone in the New England region from New York City up and down the I 95.
Five quarter and it will take a look at what we need in the Midwest or the south east and southwest regions, but that could come later, so executive ranks eight eight day I think of the injury rates were still probably in the third or fourth inning. We've got the S&P's onboard now first of all we've got the CTO and our head of vehicle design within 90 days and joined the company. They went out and found the S.
<unk> several of them had been retired for some of the Oems we had to wait for them to get through the first quarter Theyre now on board and they're off doing their recruiting for the next layer down and then we've got a pretty solid team right. So I think we're early there supply chain team. We've got to continue to build that up as we continue to ramp up our production and then we got some work to do in the <unk>.
Back offices, and the HR Iot as the planet, we're probably still early third or fourth inning of those areas.
Got it and the last one I had was just on the competitive front you mentioned that with the C 1000 in the class III that you're early but theres a lot of new entrants that you see on the show floor.
At E C T last night.
There are much better capitalized than you folks and so there's certainly a lot of people coming in 'twenty, three and 'twenty four and so I'm just curious how you view the competitive front as you ramp up.
Yeah I've been here now just a little over nine months I got to go to my first Atg Acte's show last year and when I left that show last year, my thoughts where half the companies here are not real companies. They.
They don't know what it means to build a factory they don't know what it means to source parts test and design vehicles.
Just a quick walk us through the show last year Theres, some potential real strong players here, who have deep pockets or big sponsors they're going to emerge we're competing in a lower space than we are and how they may come into our space down the road, but they still have their hands full launch into a class III vehicles or class two vehicles.
There are still several companies out here, who are in the what I'll call. The conversion mode with a 100% rely on outside people for chassis and as you know in the industry and our chassis supply is constrained as the big Oems are using there are valuable cars for more profitable vehicles I'll say, so I feel very comfortable that we execute on our plans and I'm confident we havent seasonality.
So that we can be still first to market in our segment and we'll see how the chips like alright.
Talking about building a factory or building multiple factories in a short period versus actually having a factory in retrofitting is a huge differentiator for us here at workhorse in my career I've, probably built 12 or 14 class. It doesn't happen in six months when you don't build five or six plants in 18 months, you've got to build plants takes a minimally here in North America 18 to 24.
Months to buy the land put the infrastructure in and Oh by the way higher than people one of our competitors I don't have a beautiful factory. They only have eight hourly people in that factory right now how the hell. They will launch in the fourth quarter of this year you tell me.
Thanks for the pointed response I appreciate it thanks, Rick Thanks.
Our next question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed with your question.
Alright, good morning, and thank you for taking my questions.
So Rick the progress since we met last act.
He has really been impressive and I would say the capital structure is the one thing that I would call out.
The most visible progress.
Progress that you've made so far I'm, sorry, I just want to commend the progress of the company.
So you know as you talk to equal yesterday, the first day of the show.
Was there anything new that you are hearing from your customers anything people were saying specifically about the.
The vehicle on the floor.
The.
Future offering that youre presenting in collaboration with Green power.
You know what can you share with us.
To help us with visibility on customer uptake.
Good question I wanted to Florida, I think were all in our half two hours one of the largest.
Last mile delivery, guys came by and they're all over our vehicles. So this is exactly what we need can you also build a larger version so Virginia, we had in the Florida sale of 750.
That customer said, he definitely needs 1000 cubic feet and up to 1200, that's absolutely in our product roadmap for the.
The Wi Fi six.
The big issue I think we heard rationale that theres a strong demand.
Strong than we expected when we started this journey for the cab chassis version.
There are people in this industry as you know on the commercial vehicle. There's a lot of theaters. While were originally focused on last mile delivery. It looks like with yourself and electrified cab chassis vehicles that can then go to up their thing, but when they went for a rebroadcast or a box or a flatbed and I think we're learning as we come into this industry and just how.
Complex the outstanding portion of the businesses, Okay. That's one.
Two I think one thing that's common from last year to this year as the infrastructure capacity in place.
And we saw that you know the infrastructure Bill that came out last year of about $15 billion towards infrastructure. Both for EV vehicles and also for buses. So we hope to participate in some of that in.
And recently, we've seen some of the initiatives by the department of energy to put forward investments in low cost loans for battery manufacturers here in North America. So I think the two risks for the industry, our infrastructure and battery supply I don't think batteries battery costs are coming down as fast as people projected I had one customer asking why can't.
Get $200, a kilowatt hours and I offered him I said you go by the batteries for me and I'll give you 100 dollar a kilowatt hour batteries.
He could do that right now only test that can do that right now because of build another two vehicles. So those are the two big lynchpin dicey, but the tailwind based on everything we see the demand.
By investors for ESG type companies and the commitments by some of the largest fleets in the world, especially here in North America to be carbon neutral by 2035 or 2040 are real and so that means we got to be able to have the right vehicles and then we have to have the right infrastructure. That's part of a reason to go work with charter.
Got welfare towards their facilities out in California earlier in the quarter very impressive good array of not just hardware, but software as well and so fleets have to figure out how to make this transition to <unk>.
So.
Okay.
Thank you for that so I was hoping you might be able to give us a little bit more color on.
The trucks Youre, making in partnership with Green power.
You know I know, you're the kind of guy that just doesn't make announcement doesn't make commitments like this.
Lightly and theories.
There is an understanding that there was a down payment made.
The Green power.
Can you talk about your confidence in the customer demand.
You, obviously do see something that you've considered very very we'll put that cash down to make the vehicles.
And then what are you learning.
This partnership I mean, how how is this something that could potentially grow that capability to workhorse longer term.
Bob do you want to comment about the downpayment, we lower order and then I'll come back about that yes. So when you look at our there's two parts. There's there's a there's a kind of a onetime downpayment, we made and then theres a deposit we'd make on each chassis order and so that's one time occurred in the first quarter. So over $34 5 billion in cash that we used $6 four.
Millions for the down payment.
That will be recovered over time as we actually.
<unk> to pay for the chassis.
So that would be just big chunk of our cash flow for the quarter.
Understood understood and actually since we're talking we're talking about cash flow.
It seems the SG&A kind of fairly heavy contribution of noncash items can you help us sort of unpack the 11 nine down to Dan's my cash number.
Yeah, I know stock comp so part of it.
So.
Yeah, we had a 11, 9% SG&A of which about $2 3 million was noncash stock comp.
As we've been building out the management team and that hitting the P&L side, but obviously on the cash side and then you've got a little bit of depreciation there, but it is kind of a rounding error, but but really its the stock comp that gets us down to probably a more.
Cash equivalents, even though it's on the P&L side of about $9 2 million.
Excellent.
Thank you for taking my questions and I'll hop back in the queue.
Hey, Craig let me just I'll make a couple of comments here. So in terms of Green power I'm really happy with the progress. We made it took us most of the fourth or first quarter to iron out the agreement from a legal standpoint, you have like a 58 or 68 page legal room between us and green power pretty detail.
We initiated weekly program reviews at the presidential level. That's happening then we do a monthly program with you my level.
To give you. An example on the <unk>, we're able to have some of the modifications we want for the North American market actually install at Green powers factory in Asia, which saves us some of the market transferred that the box install for the for the a W. A 750, that's all been source to a local supplier here in North America.
That's what we have here at the show and we're working very closely to follow all of their sourcing I think they have got over 300 parts they've got a source themselves and then we're working with that supplier to make sure. We build our manufacturing plants plans at Union City, we're starting to lay out the inventory flow of both the cab chassis that confirmation.
Through California, and how much we're going to have on the ground in Union City, what our production time is we've already got the tack times there and then how much we're going to have in our finished pool versus how much is going to go right to our customers. So we're doing a lot of detailed work. It's it's what I'll call mind Numbing engineering mathematical work, both from a supply chain and engineering standpoint, but we're confident.
We get there I think we're at our price points, we expect to sell in the market based on our customer feedback and the margins. We think we're gonna be it.
Hopefully that gives you some color on the upcoming launches it up yourself to VW for C C.
Our next question comes from the line of Greg Lewis with <unk>. Please proceed with your question.
Yeah, Hi, Thank you. Thank you and good morning, just one question for me.
Rick.
I mentioned it in your in your prepared remarks about the potential there.
It kind of expand that around union had contract manufacturing.
Realizing that you know the focus now is on getting your trucks out the door.
Over the next 12 24 months could you talk a little bit how you see the potential move into contract manufacturing playing out for workhorse.
That's great Great I think we did when I got here I didn't think we plan on doing contract manufacturers, but the fact that a lot of companies don't even have factories a lot of them are new install build type situations.
I think we were caught pleasantly surprised by the inquiries. We had we have multiple inquiries right now the challenge. We have is okay can we handle everything we're doing ourselves, which is a hell of a lot between C. One thousands W. 750, <unk> W. Five six W. Before can we not distract the organization.
Asian by taking on contract manufacturing. The good news is we hired a VP of manufacturing services in late first quarter. He has the bandwidth right now to take on some of the quoting activity with our finance team and so we have at least one quote out there right now we'll find out whether were selected to be that a contract manufacturer here in the next 90 days.
And we are entertaining another one right now which is a.
Another electric vehicle in a different class of vehicles. So that goes back to our vision of being a pioneer in the transition to zero emission commercial vehicles. So I think we can do it I think we have the floor space.
I'll have to add talent, specifically supply chain and program management and we can get the hourly people for sure at Union City, It's a hungry hungry location, where we used to employ well over 800 people to pay day in novel and do about 100. So the community wants us to be successful and we want to wind up in Union City.
Okay, Great Hey, thank you for that.
Correct Greg.
Our next question comes from the line of Mike <unk> with D. A Davidson. Please proceed with your question.
Yes, Hello, guys good morning.
I wanted to maybe touch first briefly on the Opex outlook and the Opex in the last quarter here I won't confirm it was the $2 1 million increase in professional services and legal was that onetime in nature and that's my first part of the question. The other part was.
When you consolidated into Sharonville did that result in any cost savings on overhead et.
Et cetera.
Sure Bob.
So that does the legal and professional I would characterize as maybe not permanent but I can't call. It one time, either I think with with all the different things that we've got going on.
And trying to advance the business I think we'll be in that.
Run rate for a little while here.
But it's probably not permanent.
Or is the Opex savings on the move we did we will save.
One facility.
But I wouldnt from a modeling perspective I wouldn't factor in net savings I think you know it'll be.
There's a little bit more expense actually as we once we get done with everything the other facilities that were consolidating out of we actually held.
So.
I wouldn't build anything from a savings perspective in your model for that consolidation, but Mike you can't model. Then if you don't have enough parking spots for your people.
Pardon me in the grass for parking on the neighbors parking lot the facilities, we had where I'd say.
<unk> get best How's that so the recruit people and now we have a world class place well lit well equipped not parking big prototype area, we can actually fly drones indoors, when we finish the prototypes and its got high routes and so on.
I'm proud to be sitting there now versus before I used to be embarrassed to brings a deep when they get interviewed here how's that cant put a number on that and I would say you know, especially as a finance person I think it's hard to put any kind of numbers on this but just having people in the same room. The collaboration has already improved just in the short time and can't value that but it's definitely been powerful.
Sure sure that makes them that makes sense can I turn to the.
Orders for the 750.
You've got your first purchase order.
Sure.
Detail there is it more for.
Previously 1000 customer someone told me new and can you share it.
The van or just a chassis cab.
Actually it's not worth a previous customer it's with two different customers. We're not publishing I don't think yet right out who those customers are we had dinner with one of those customers last night. They explain how big their fleet is it North America the opportunity to move from ice powered vehicles to E V power vehicles as significant.
Also in that meeting we had last night with was one of the largest commercial vehicle operators in all of North America, and they told US their plan between now and 2025 and to convert 50% of their vehicles to EV powered systems.
So we're really we're pretty encouraged by those opportunities right now.
Great I also wanted to ask about the split between the W. 15 minutes and the chassis cab model are there any impacts differently.
Financially I mean, if you're not doing the update yourselves.
Notably 2000, EBITDA that you're not going to get it.
But from a margin perspective is it similar.
Changes that between the two models.
Yeah. So as you pointed out obviously, the revenue and the margins a little bit less of a shift we've shifted quite a bit to the to the.
Cab chassis, however, I would say that the EBIT impact is not.
Not huge.
Probably in the one to $1 $5 million range.
You mean overall overall.
Overall.
Okay Alright, great.
Great.
Thanks, Mike.
Yes. Thanks, so much guys appreciate it.
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.
Yeah.