Q4 2022 Workhorse Group Inc Earnings Call
Speaker 1: Other.
Speaker 2: Ladies and gentlemen, greetings and welcome to the Workhorse Group's fourth quarter and full year 2022 Investor Call.
Speaker 2: As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, where course groups of Vice President of Corporate Development and Communications, Stan and March, sir, you may begin.
Speaker 3: Thank you, Darryl. Good morning and welcome to all of you joining us on today's fourth quarter and full year 2022 results call. Before we begin, I'd like to note that we've posted the results for the fourth quarter and full year ended December 31st, 2022 via press release.
Speaker 3: We also issued a second press release this morning that covers the planned board of directors transition for the annual upcoming meeting of shareholders.
Speaker 3: You can find both these press releases as well as the accompanying presentation for this call in the Investor Relations section of our website. We'll be tracking to the posted presentation during the call, so please follow along either from the link in the press release or through the website directly. And with that, let's get started.
Speaker 3: Joining me on today's call, shown on slide 2, are Rick Daock, our CEO , and Bob Ganan, our CEO none the return of for the model.
Speaker 3: The agenda today is found on slide three.
Speaker 3: Following my opening remarks, I'll hand the call over to Rick. We'll give you an update on the progress we've made on our strategic and operational priorities during the fourth quarter and the beginning of 2023.
Speaker 3: Bob will then walk us through our financial results for the quarter and full year, and then provide our outlook for the year ahead in 2023.
Speaker 3: After Rick's summary, we'll take your questions. Moving to slide four, you can find our forward-looking statement. As you know, some of the comments will be made today are forward-looking and therefore are subject to certain provisions and as a result are subject to risks and uncertainties.
Speaker 3: You can find the full disclaimer statement in our 10K or other periodic filings on file with the SEC as well as in today's press release.
Speaker 2: And with that, I'll now turn the call over to Rick Doubt. Rick, thanks Stan and good morning everyone. Thank you for taking the time to join us today and for your continued interest in and support of our course. Over the past 12 months, we've taken decisive actions across the organization's position workforce for long term success. Thank you.
Speaker 2: We made great progress in the fourth quarter in our voice or breakout year in 2023 We're encouraged by the progress we've made in our confidence that our stakeholders will see the benefit of these actions in the near future Let's start with some of our highlights and key accomplishments from the fourth quarter on slide five
Speaker 2: Giving the right people in the right seats is the foundation of building a company that can successfully make the transition from being a technology startup into becoming a real commercial EV OEM. It takes relevant industry experience, functional expertise, and the selfless work ethic to be part of the workforce team.
Speaker 2: Throughout last year, we talked extensively about the key hires we made across our executive leadership, engineering, operational, commercial, administrative, and financial teams.
Speaker 2: All of whom are instrumental in driving our Go Forward strategy. We are pleased to have completed building out our strong team, hiring almost 160 people last year.
Speaker 2: which is the right one to execute our business initiatives and achieve our vision of pioneering the transition to zero emission commercial vehicles.
Speaker 2: We also need to have the right systems and processes in place, and they need to be operating effective. We award diligently on these important basic building blocks from engineering design revision control, fundamental lean manufacturing planning to adopting appropriate human resource systems. These sorts of things do not sound critical, but they are absolutely critical to running an effective
Speaker 2: As it relates to our W-750 step van, pilot builds are underway right now. And we start regular production of this Class 4 vehicle in Q2 this year.
Speaker 2: We also began shipping trouble vehicles assembled at our Union City facility and are looking forward to ramping up production on that vehicle each quarter in 2023
Speaker 2: Most importantly, we are on track to unveil the W56 at the upcoming NTA work truck show and begin production of this same this game changing vehicle in Q3 this year.
Speaker 2: Launching four new commercial vehicles over the course of 12 months takes a lot of hard work and coordination. Trust me.
Speaker 2: Finally, we are doing the necessary market data analysis for the future design of the WNEX, which we plan to bring to market in 2025.
Speaker 2: As you know in December we held our first analyst day at our real, idolized world-fast, manufacturing complex in the United City, Indiana. We thank those of you who are able to make the ship to the University back in December and we were excited to show you the real tangible progress we're making across our electric vehicle and drone product families firsthand.
Speaker 2: as well as show off our transform manufacturing operations in deep venture talent.
Speaker 2: Looking at the facilities outside of the University Plan, we have concluded equipping our Wix of Michigan Technical Center.
Speaker 2: Our Sharonville Ohio prototype shop is near-compleasing, just waiting for a few key components to hook up some electricity. And we are installing production lines in our drone manufacturing facility in Mason, Ohio as we speak.
Speaker 2: To take away summary from all this hard work on facilities that we are we now have the physical infrastructure and tools in place to design Test and build world-class commercial vehicles both wheel and rotor-based products Drilling down a bit more into arrow we continue to advance our drone technology development and are excited about the tremendous opportunities in this space
Speaker 2: We conducted demonstrations of our horse fly during the first two months of 2023, first by flying simultaneous package deliveries by multiple aircraft for prospective last-mile delivery customer, and secondly conducting a successful field test for internal operations of a separate last-mile delivery customer. I will say that both of these potential customer highly impressed.
Speaker 2: with what our workhorse product and our flight team can do. We are also successfully built to us at the humanitarian and logistic operations or Halo drone internationally.
Speaker 2: The AELT also want to state a grant to support beyond visual line of sight work in Michigan, and we continue flying in support of the U.S. Department of Agriculture.
Speaker 2: We will continue to work on securing additional new federal and state level grants or long-term contracts for our arrow business. We expect to start the production of drones and generate revenue in this business later this year.
Speaker 2: Our Stables and Solves Initiative in the fourth quarter successfully managed deliveries to the peak holiday season, gaining valuable insight into the challenges of running and managing the fleet of the aging ICE vehicles. We are using our first EV, one of the denogravew 750 in commercial service on a daily basis and expect to fully electrify our Stables and Solves fleet by the end of Q2.
Speaker 2: We continue to explore options to establish a second stable installs operation in an incentive bait state sometime this year.
Speaker 2: Finally, we resolve the number of legacy and regulatory issues, which has been critical, which has been a critical mandate for our new team.
Speaker 2: This includes proposed settlements to resolve the Security's class action lawsuit and related to shareholder derivative actions.
Speaker 2: And notice from the SEC that it's previously disclosed investigation concluded with a recommendation not to enforce action against the company.
Speaker 2: These are important steps that allow us to further sharpen our focus and our resources on our strategic priorities. In Q4 we made the tough decision to discontinue the C1000 program. Our team did a thorough engineering view and conducted extensive durability testing. However, we decided that a platform could not be resigned or repaired sufficiently to put a safe, reliable and durable vehicle on the road for our customers.
Speaker 2: Therefore, the best step for our company was to reallocate engineering and supply chain resources towards its development and production of our other products.
Speaker 2: We expect previously built C-1000 years will be decommissioned disassembled and disposed up by the end of Q-1 2023
Speaker 2: Turning to slide 6, we continue to make important progress executing on our commercial vehicle product road maps throughout the fourth quarter with the goal of delivering high quality, faith and reliable electric vehicles to our customers.
Speaker 2: Starting with our class 4 offerings, the W4CC and the W750.
Speaker 2: Our supply pipeline is now functioning much better and we are buttoning down the manufacturing quality control processes for both vehicles. As I mentioned before, we are pleased to be able to produce and deliver 23 W4CC vehicles in the fourth quarter. We are encouraged by the strong customer interest and expect to continue ramp up production and deliver this vehicle in 2023.
Speaker 2: a little over a year ago.
Speaker 2: as the first new workhorse fully designed and purpose-built class 5, 6 chassis platform. This program is remained on track, both on time basis and budget-wit basis, since it's inception thanks to our engineering and supply chain teams, and we expect to start production in Q3 this year.
Speaker 2: You can see a rendering image in the lower right-hand side of the slide. It's an impressive vehicle with superior driver visibility and turning radius.
Speaker 2: Having driven one of the program builds myself, I can tell you it's a serious, capable work truck. We plan to showcase the new production intent step-band vehicle next week at the NTA Work Truck Show on Indianapolis.
Speaker 2: to allow prospective customers to see the product firsthand for the first time. Ride and drive of this vehicle will be offered in May at the ACT Show in Anaheim, and customer demo vehicles will be in the field starting in late Q2. Moving to the WNEX vehicle, which we outlined at Alistair, we are combining our previous and extensive Class III and IV vehicle fuel experience to develop an X generation vehicle that with an accessible Love Floor frame.
Speaker 2: advancing development of our drones during the fourth quarter as we target two compelling and growing markets package delivery and agriculture on infrastructure data acquisition.
Speaker 2: an extensive demonstration for a last mile delivery company.
Speaker 2: As you can see on the slide, our demo consists of 50 non-stop deliveries with three drones, two of which were in constant automatic or autonomous flight operational mode.
Speaker 2: In our second test, we flew a series of demonstrations for a different last mile delivery company to validate a concept they are considering to support their own internal flight operations.
Speaker 2: We had a completely different flight team, do this demo, and again, it could not have gone any better. We had a third field team, traveled to Europe to train a foreign flight crew that had a significant drone experience, and then the newly trained teams successfully field tested our Halo drone internationally.
Speaker 2: Additionally, we have also partnered with the U.S. Department of Agriculture and secure new federal and state-level grants, including Michigan, to help accelerate the feeling of this product. And we are actively exploring new opportunities for collaboration with both federal and state government agencies. On Friday, as I mentioned earlier, we have completely transformed our union city
Speaker 2: of the W4CEC, the W7550 pilot builds, trope-oost vehicles, and soon the W656 line will open up. I am pleased we are finally getting the plant into production mode. We will be installing the end of line Dino and Q2, our new assembly line and a dedicated paint line is being installed ahead on site of the W56 production in Q3.
Speaker 2: Additionally, we are in the process of installing production lines for our drones that are engineering technical design and production facility in Mason, Ohio, so we can start regular production in Q2 this year. With that, I'll now turn to Call of the Bob to discuss our financial results. Thanks, Rick. I will now cover our financial results for the fourth quarter and full year.
Speaker 4: 2021.
Speaker 4: The increase was primarily due to increased W4 CC sales. Cost of sales decreased to 21.2 million from 99.9 million in the same period last year as the company recorded several non-cash charges including 12.8 million in additional inventory reserves and disposal costs for the discontinued C-1000 program compared to a 94.3 million C-1000 charge in Q4 2021. Selling general administrative expenses decreased to 13.5 million.
Speaker 4: the W4CC, W750, W56, and two drone product lines. That interest income was half a million compared to net interest expense of 35.7 million in the same period last year. The change in interest income was primarily driven by the exchange of the convertible notes concluded earlier in 2022.
Speaker 4: Net loss was 38.6 million compared to 156.1 million in the same period last year. Loss from operations for the fourth quarter was 39.3 million compared to 120.4 million in the same period last year.
Speaker 4: As of December 31, 2022, the company had 99.3 million in cash and cash equipment. Clearly to our full-year results on SITE 10, sales net returns and allowances for the full-year 2022 were 5 million compared to a negative 0.9 million in 2021.
Speaker 4: The increase in sales was primarily due to the increase in sales volume in 2022 compared to sales net. It returns allowances recorded in 2021. In connection with the recall, C1,000 vehicles announced in the third quarter of 2021.
Speaker 4: Cost the sales from full year 2022 decreased by 94.8 million to 37.7 million compared to 132.5 million in 2021.
Speaker 4: The decrease is primarily due to the shift in production to new vehicle platforms at lower volumes compared to the C1000 program in production in 2021. C1000 program incurred 19.5 million increased in the inventory reserve, pre-paid purchase reserve in 2022, the tribute to the discontinuation of the C1000 program.
Speaker 4: compared to a 105.7 million charge recognized in 2021. SGNA expenses for the full year 2022 increased to 73.2 million from 40.2 million in 2021. The increase was primarily driven by the $20 million legal settlement expense.
Speaker 4: and a 6.5 million increase in professional legal services primarily related to the securities and shareholder derivative litigation. The increase was also a trivial to an increase of 11.1 million in employee and labor-related expenses, including stock compensation, increase headcount and the appointments of the new executive leadership team during the year.
Speaker 4: R&D expenses for the four-year 2022 increase to 23.2 million from 11.6 million in 2021. The increase was primarily due to a 6.1 million increase in employee and related expenses resulted from an increase in headcount, a 2.4 million increase in prototype components, a 2.1 million increase in consulting fees to support the expanding product.
Speaker 4: of 7 million related to fair value adjustments and losses on conversion of the comparable notes and a 6.4 million reduction in contractual interest expense.
Speaker 4: Additionally, the company recognized $0.3 million of interest income in 2022.
Speaker 4: Further the company recognized the gain of 1.4 million on the forgiveness of the prior PPP term note during the year-end of December 31st, 2021, compared to no gain recognized in 2022.
Speaker 4: Other income for the full year 2022 increased to $13.6 million, primarily attributed to gains from the sale of inventory related to obsolete C1000 vehicle parts. The 2021 losses are related to unfavorable changes in fair value and sale of investment in Lordstown Motors Corp., which was sold during the third quarter of 2021.
Speaker 4: With years ended December 31st, 2022 and 2021, the company incurred taxable losses in this no provision for income tax expenses when reported. Net loss was 117.3 million compared to net loss of 401.3 million last year. Turning to slide 11 to discuss our balance sheet for the year ended 2022.
Speaker 4: As we mentioned last quarter, we are debt-free following exchange transaction Q2.
Speaker 4: As of December 31st, 2022, the company had 99.3 million cash and cash equivalents. We also continue to have our ATMs in place and use it judiciously in Q4. You also see that we recorded a $35 million liability for the shovel or lawsuit offset by a $15 million insurance receivable. The other item, interest on the balance sheet, is a 10 million investment trope hose and a related 5.4 million of deferred revenue. Thank you.
Speaker 4: We currently expect our capital expenditures to upper your facilities in Indiana, Ohio, Michigan to be between 15 and 25 million in 2023. We believe our existing capital resources and capital availability, and we sufficient to support our current and projected funding requirements through 2023. If an opportunity rises, we will raise additional financing in 2023, including through a continuance of our at-the-market offering. We will lead to slide 12, which covers our guidance. The positive momentum coming out of 2022, and took the necessary steps to prepare for expanded operations in 2023. Looking ahead, we will focus on manufacturing, operational excellence, and financial.
Speaker 2: We are focused on advancing our new product programs.
Speaker 2: We are now in pure execution mode on all four programs. Specifically, we expect a ramp-up production of our W4CC in the first quarter, targeting 40-50 trucks per month by Q2. W750 pilot builds are underway right now, and we will start regular production of that vehicle in Q2 and deploy them in...
Speaker 2: deploy several of them to Lexplier stables and stalls also in 2Q. Final testing is underway on the W56 program at multiple locations and we will begin showcasing the W56 to customers in March, both at trade shows and with personal demonstrations at key customers.
Speaker 2: Horsefly and Halo testing is now complete, validation is complete, and both drones are now available for sale to our customers. We're in the final stage of expanding our certified dealer network, ensuring we have commercial business partners, capable of serving both niche, regional and national fleet customers. We are quickly building a nice backlog of orders, first for the W4CC and W750 and soon.
Speaker 2: On slide 14, making the transition from a technology startup to being a real OEM is not easy, nor is it for the faint of heart. It takes time, a great team of dedicated people, significant capital, and capable back-off of systems to make the transition a reality. Before we turn the caller to Q&A, I want to re-emphasize five key takeaways that I'd like you to all the walk around.
Speaker 2: I will put up our team against any commercial EV startup company in the world.
Speaker 2: Second, we have real tangible progress. We have made real tangible progress on our new product road maps in our now well-positioned ramp-up production in 2023 through 2025 on multiple class 4-6 commercial vehicles.
Speaker 2: We continue to advance our drone development efforts and believe that there are tremendous revenue opportunities in this segment both in the commercial and government segment areas. Third, our facilities have been completely transformed and modernized. And we now have state-of-the-art capabilities to design.
Speaker 2: test and produce our vehicles and deliver high quality products and services to our customers. Couple with our process and IK systems improvements, we have the necessary tools in place or underway to become a leading commercial EV OEM. We are not talking about building and tooling plants in the future. Our plants are production ready now in 2023.
Speaker 2: Fourth, we have resolved our legacy legal and regulatory issues which allows us to focus our time, resources, and efforts on advancing our product roadmaps and delivering high quality, safe, reliable, and durable products for our customers.
Speaker 2: We remain confident in the market opportunities that head up in our industry and know that we have the right team, right products, and right production plans in place to deliver significant value to our customers, our shareholders, and other stakeholders. There's a strong market demand and governmental support for commercial EVs, UAVs, and enabling infrastructure.
Speaker 2: And finally, we have the financial strength to support our business strategy. While others continue to struggle for survival, we fully expect to emerge as a winner in the nascent commercial EV market. That concludes our prepare remarks. We're now ready to open the call for your operators. Darryl, please provide the appropriate instructions. Thank you. We will now be conducting a question and answer session. afternoon.
Speaker 2: If you would like to ask the question, please press star 1 on your telephone keypad. The confirmation tunnel indicate your line is in the question queue. You may press star 2 to remove your question from the queue.
Speaker 2: For participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys. One moment please while we pull for your question. Our first questions come from the line of Colin Rush with Oppenheimer. Please proceed with your question. Please proceed with your question.
Speaker 2: Yeah Colin, good question. You know we got the trucks in late fourth quarter last year. We're now exercising our production. You know people hadn't worked at the facility for quite some time in terms of torque tools, turning wrenches, etc. So we're proving out some of our production processes. We're making sure we have the quality control, process controls in place to make sure we're building safe, reliable vehicles.
Speaker 2: We're probably up right now about two a day on W4CC and we're moving towards, you know, somewhere between 40 to 50 as we In go into the second quarter and then we'll see how it goes from there That's primarily W4CC W750 we're still on pilot build mode. I think we've got one full pilot done We have another one that's 90% done and we have a third. It's about 50% done So we're waiting for a few key parts as we're making some
Speaker 2: As you go through pilots, you make some engineering changes to make sure we have fit form function going together now So I'm pretty confident we'll be in on production pace in the second quarter there And we'll see how many trucks we go there this year W56 we won't really get into pilot production Until like a late second quarter and then we'll start regular production with a very slow ramp up in the third quarter And then we'll
Speaker 2: start ramping up pretty hard in the fourth quarter. So it's going to be a nice continuous year of continuous launches. And having gone through launches before, they don't always go perfectly. You have supply chain issues, you have tooling issues, you got training issues. So we'll have some hiccups and starts and stops, but I think that we come out of 23 in a really good position rolling in 2024.
Speaker 2: Okay, and with the cadence of the cost reduction, is that going to just be an inversion of the cadence of the production ramp or are there going to be some main points? Sure. So, we'll get more efficient as we go forward. So, our team has spent almost six or seven months in the classroom learning about lean manufacturing. By the operating permit, I promise you the University of Michigan has is plan to Trooper of horn wood.
Speaker 2: Now they're starting to practice lean manufacturing. So whether it's how we walk around a station to build a truck to minimize steps or how we deliver materials to the floor, we're cleaning out all the old C1000 inventory out of the warehouse. Well, I'll be gone by March 15th and then we can start laying out all the inbound materials that come in for W4CC, W750 and W5-6.
Speaker 2: Right now it's the focus that I'm getting that truck out there. We're the only one I think If I'm wrong that has a fully electric class 4 vehicle with a range of 150 miles. I can carry a payload of 5,000 pounds
Speaker 2: So we have some ability to get out there to be first to market which gives us some flexibility in terms of our pricing and then we can keep driving costs down down the road. We already are looking out at opportunities in 25 and 26 of how we can take out some of the bill of material costs for sure.
Speaker 5: Okay, that's awful. And then it's a good segue into my second question around the customer dynamics. Now that you have some trucks to show folks that they can drive, how is that changing the dynamics with customer engagement, your ability to close sales, building up a pipeline of opportunities and starting to close that? Great question.
Speaker 2: First thing we did was hire a dynamic leader in Chris Aimee to take over our commercial vehicle sales responsibility. She has over 20 years of experience selling commercial trucks.
Speaker 2: across the country, both on a traditional ICE and EV. She's built an outstanding team, both. We have three regional sales members who've got key customer contacts. All three of those people have over 20 plus years in the industry and we've also built the back office now.
Speaker 2: both here from an administrative standpoint and also from service support to make sure we can take care of our customers. That's number one. So we have the systems in place, or soon we'll have the systems in place, to build trucks and ship trucks and take care of trucks in the field. I'd say this, the feedback I've got, and I've been on the road quite a bit in the first quarter meeting with customers, we've hosted several up at Union City, they're impressed by our facilities. We're on track to have 11.
Speaker 2: certified dealers here in the second quarter this year, and that'll lead to quite a bit of sales. I think right now, Bob and I feel comfortable that we have 80% visibility into the low end of our $75 million sales range in 2023.
Speaker 2: here in the second quarter of this year, and that'll lead to quite a bit of sales. I think right now, Bob and I feel comfortable that we have 80% visibility into the low end of our 75 million dollar sales range in 2023. That's the ground floor. Thanks, guys.
Speaker 2: Thanks, Mr. Goh. Thank you. Our next questions come from the line of Greg Lewis with BTIG. Please proceed with your questions.
Speaker 6: Yeah, thank you and good morning everybody. You know, just following up on that, you know, around the guidance, you know, as we think about, you know, the kind of the puts and takes of that, is the high end of the guidance, is that or however you want to talk about it.
Speaker 6: is almost the 4d to 50 per month range already.
Speaker 2: Yeah, I take a couple things. We want to make sure we set a range that we can achieve. As I said, we have an 80% visibility into low in the range. I've been in this industry now for over 30 years. Pilot and launches don't always go perfect. Right? If they do, great. If they don't, we've got a little wiggle room I'll say right now. Right? Right.
Speaker 2: The more we can get demos in the hands of customers, the more they're going to like them, I think. We've had at least three customers in the last 60 days come to Union City and they turn around and sign up as new dealers almost within 30 days. Okay, so I think the more we get our products in the hands of customers, they can test drive them.
Speaker 2: They can think through all the different variations on the W4C and what they can put on the back, the better our sales will be. I think we were surprised.
Speaker 2: We brought the W4CC over in December of 21 to show a couple customers thinking about we build the step ban.
Speaker 2: And overwhelmingly the customer said they really want the W4C cab chassis. That's where the bigger opportunity that we didn't see that when we first started looking at the market.
Speaker 2: So I think that's a big opportunity for us.
Speaker 2: You've got to go through the upfit. I know we have four or five trucks sitting at upfitters right now. One's getting a drive in on it, one's getting a reefer, one's getting a configured for shuttle bus, one's getting to put together for a flatbed. We've got a really important commercial partner that we've had for a while who's been helping us work our way through and to better understand how these vehicles go to market. So when we thank them. Great. And then I was hoping you could provide a little bit more.
Speaker 6: year and kind of how you think about the potential to scale that up as 2023 moves forward.
Speaker 2: During that's a great question. I'll say two things. You know, when we first got the vehicles, then we experienced a little bit of shipping issues in terms that we got to do with some repairs. We worked quick with Reempower to get those taken care of.
Speaker 2: Two, when we got some of the W4CC chassis into the hands of the upfitters, we got some real feedback. Late December and in early January , we're making a few quick changes that they want to see. They like the base truck, they like the power chain, they want some things that are better for the fit of the boxes, etc.
Speaker 2: The cab chassis are coming over with what we call a cutaway back, and they want a fixture across the back. So our engineering team literally, in less than three weeks, came up and designed a new back to put on the back of the truck that provides a much better fit for the upfitters. We think they're very happy with that solution. We just finished testing it on the test track last week. Thank God we did.
Speaker 2: team and our test facilities and our manufacturing to be able to be so nimble to move that quickly. Okay? And that was like seriously, literally we got some trucks out between December 15th and 31st by the first week of January we got some feedback, hey we got a few issues with you guys that we need to get addressed and here we are in the February , I guess today is March 1st and we've already got solutions to get to the customers here.
Speaker 2: between down the other quarter. So. Thank you for the thoughts. Thank you. As a reminder, if you would like to ask the question, please press star one on your telephone keypad.
Speaker 7: Our next questions come from the line of Chris Suther with B. Riley. Please proceed with your questions.
Speaker 8: Hey guys, let's take my questions here. On the 80% visibility in the low end of the range, I'm curious what the W56.
Speaker 8: contribution is there ahead of the commercial launch next week or is it really just for the W4W750 at this point? And then maybe what kind of contribution are you expecting from you know, grown contract manufacturing and you know other stuff for as far as you know the guidance picture there.
Speaker 4: So, by Chris and Bob, I would say that visibility is predicated on the W4CC platform and then from there we anticipate the W5-6, W7-50 and then ultimately getting the drones contributing to the number as well. So, right now the visibility is...
Speaker 8: process is going and you know versus kind of new customers that you've been engaging with some of the new team members you've added.
Speaker 2: Yeah, Chris, that's a great question. I'll tell you, first of all, I'm kind of known in industry as an operational animal. So I'm going to have to take my operation on hat off pretty much in the next 35 days and turn into a commercial animal and re-engage with some of those big legacy.
Speaker 2: potential customers, right? I didn't feel comfortable until we had hard physical product to take out the customers. So showing somebody something on a PowerPoint is one thing, actually have to drive the vehicles and see how they work is another thing. And I think our vehicles will sell themselves once we get them in the hands of customers.
Speaker 2: We have at least five large commercial, either last mouth delivery or work truck customers who ask specifically for a W56 demo. They want to be able to test them themselves with their team for two to four weeks.
Speaker 2: So as part of our pilot and program builds, we're building some commercial demos to send out. And each one of our field sales team will have a family of either a W750, a W4C, or a W56 to take around to different regional customers.
Speaker 2: On the drone side, out of one of our successful demonstrations that customers ask for two of our drones to be tested for 30 to 60 days at their own test facilities somewhere here in North America.
But I think we're at a point now after 18 months of super hard work to actually have viable products that are commercially not only technically viable, safe, durable, but also commercially reliable in terms of the way we can build them at a cost and sell them at a price and make money. That wasn't the fact when we got here back in 2020.
that help hold cuss our hands through those processes or you know how many more these you think you'll be setting up essentially is kind of what I'm getting at too. The question's up.
We chose to do the first one here in Ohio. It's close to our technical team. It's close to our factory and we can get there as leadership team is less than literally 15 or 20 miles away. We got buy-in from FedEx, both here regionally and back in Memphis to try it.
We've built the facility, we've secured the facility, at least it, we've transitioned it. We've put the charging stations in. We're almost done bumping up the interior where we can put the lifts in to go work and service trucks. We have learned a lot. I'll say sometimes painful in terms of new transmissions, repairing tires in the snow, having to change an engine.
what it takes to maintain and keep qualified drivers and have safe drivers on the road. So, here in Ohio, we're blessed with the Ohio River and low-cost electricity, but we're not blessed with incentives from the state of Ohio. We've done some work as a commercial team. We spent a couple days in some training sessions to make sure we understand the CARB rules in California and all the different incentives across the state of Ohio.
17 or 18 states and so Stan March is leading that effort for us and he's buttoning down. It looks like we're going to focus on one of two regions, one on the West Coast or one on the East Coast where there's significant commercial incentives up to $100,000 per vehicle in some states, 60 and others for our vehicles. And we'll choose one of those selections. We're working with FedEx to identify the best location.
and we'll probably have a second operation up and running this year. Then we'll stop. Remember our goal is not to build out a whole network of stable installs. It's to build out two or three stable installs to better understand what it costs in operator transition, historically, isely to EV, the acquisition cost.
the total cost of operations and ownership, and where to say we can help justify the business case then take back to some of the customers, whether that's independent contractors on the FedEx brown side, or to other large commercial users of commercial trucks, people who deliver to grocery stores, people who deliver to goods and supplies to factories. Everybody's trying to figure out how to make this transition work, right? And quite honestly,
The government's got to help put in the EV infrastructure. They're doing that. Until we get the volume, the government's got to provide incentives, for else, it doesn't make a lot of logical sense. The EV costs a lot more money. Until we get batteries in the volume, that costs come down significantly.
Okay, and I was able to call it. We are in the very, very early stages of this transition. You can read all the press publications about the crazy how fast we're going to go on EV. At the end of the day, you have to have the infrastructure in place and you have to have an economic model that works for both the...
Suppliers the manufacturers and the in-use customers if you don't then hit it doesn't work, right?
We think we're on a paddle or to get that done. Maybe just my last one, you know, timing around kind of positive growth margins and where we start to get to leverage. You know, is that something exiting this year? We should expect to give in kind of the ramp up throughout the year. And then I'll hop in the queue. So so.
You know, every truck we sell, we expect contribution on it from the very beginning, but as you said, total gross margin is about fixed cost coverage. So, I don't think we'll be there by the end of this year, but we will, you know, be, I think, make significant progress towards positive gross margin as we ramp up production.
truck we sell, we expect contribution on it from the very beginning, but as you said, total gross margin is about fixed cost coverage. So I don't think we'll be there by the end of this year, but we will, you know, I think make significant progress towards positive gross margin as we ramp up production. Appreciate it. Thanks all. Happy New Year.
Yeah, I think the one thing I'd say to you is that if you take a look at the commercial EV space, there were a lot of projections over the last two or three years, and almost all of them came up short in two areas. One, it's a hell-a-lot tougher to go from concept to production, and it costs the hell-a-lot more to get there. Okay? Just go back and look at all the old forecasts.
Some of the other EV SPACs and stuff and that are they coming up short? Have they built their plants, etc? We're very fortunate here at Workhorse that we got a plant that's been around for almost 20 years. It didn't cost us as much to renovate and upgrade the factory as it would have to build a brand new greenfield site, which we've taken a couple years. So we were able to...
get that union city facility turned around and ready to go in less than six to nine months. For about $20 million and we'll put another $15 or $20 million in this year in terms of paint line, inline, inline, inline, inline testers and the AGBs to move the vehicles around the plant. Thank you. Our next question has come from the line of Jeff Osborne with TD Cowan. Please proceed with your questions. Thank you.
Thank you. Good morning. Most of my questions have been answered. A couple of quick ones. One was actually on catback to it. Two were just touching on. What should we assume for 23? I might have missed that. Prepare to move. Thank you.
Jeff, this is Bob. We expect somewhere in the 15 to 25 million range, so pretty consistent. And primarily, Rich is outlined the three major projects, AGVs, Payne Booth and Dino are the bulk of that. A little bit of money on an ERP, but in that $15, $25 million range.
Got it. Another quick one, Bob. On the modeling side, there's a bunch of sort of things in the optics. Can you give us a run rate for the first half of the year, for the full year, how we should think about total optics on an annual and quarterly basis?
I think when you look at the fourth quarter from an op-x perspective, it's pretty indicative of where we are now.
And I think that's pretty good run rate.
I'll let my last question. How should we make a pricing, if you could mention that the cab chassis is a bit more interesting. You know, that maybe lower price is a full vehicle. You know, at the end of the day, you know, that's the predominant mix. How should we make that ASP to you?
Jeff, you broke up a little bit, so then you repeat that. You said something about the sale price of the cab jazzy versus the full vehicle, but I didn't quite understand your question. Yeah, Paul, Jeff, I've got a back connection here. I'm just curious if there's more interest in cab jazzy than I just made it. What that does to average AAC through here.
You're talking about average pricing across the two different the Miller cab chassis or step bands after asking.
You're talking about average pricing across the two different the Miller cab jas your step ends after asking Thank you
Yeah, you kind of saw some indications in the fourth quarter. You can kind of do some backward math in terms of revenue and number of vehicles sold. We didn't sell any drones, so you know, we did have some stables and solids revenue. We had some drone service revenue. So you can probably get to a back of the envelope calculation for a range. As we ramp up, prices are pretty, a little better than we thought when we did the modeling.
We are looking at more receiving some big orders, you know, we can have some discounts in there But they're not not huge discounts is what I'd say right that we have One dealers indicated they want to buy somewhere between 250 260 vehicles this year already So just one just one customer so
Great to hear this. Thank you. Thanks. Thanks, Joe. Thank you. Our next question has come from the line of Mike Schiske with DA Davidson. Please proceed with your questions. Good morning. And thanks for taking my questions. I did miss your first few comments. So if there's a last answer, just let me know. First few comments on the potential.
cultural royalties that might be coming or not be coming from from the old Georgetown deal It sounds like there's a filing that they're trying to get out of the deal Curious can it just you know kind of you lyrd just do that and are there any unusual legal costs Which you looking at for 2023 to get that deal enforced? It's a big number. It's like probably worth nine figures to work for so I'm just want to make sure that that's still going to happen
So, we, you know, as we say in our release, we believe that, you know, the royalty still apply regardless of the status of the agreement. But I would also say that, you know, the main dependency here is they have shift trucks, and that's the dean of the day, that's what generates the royalty. So, so we believe we still...
have the railing place and that's kind of where we stand right now. It's not a stop to that cover but I'm only personally have shipped a few. Just actually asked about at this point have you invoice them for that pocket change that they might hold you for the for the first handful? No, we're still waiting on the on reporting so that we can do that next step.
That's kind of where we stand right now. It's not a stop to that cover, but I'm only personally have shipped a few. This actually has about, at this point, have you invoiced them for that pocket change that they might hold you for the first handful? No, we're still waiting on reporting so that we can do that next step. OK, great.
Um come moving on I want to open any old wounds here and open up the old USPS question again, but they are now awarding easy contracts beyond just Oshkosh They are you know somewhat small words, but they are awarding them. They just word over big 9,000 events yesterday It's a very active buyer there does workhorse have any opportunities to get bid on on those cop orders going forward?
That's going to be that. Here's what we read all the announcements. You have to say that they awarded some, I think, their Class 2 or Class 3 transit vehicles to Ford. So congratulations for the Motor Company. Well learned. We do think there's opportunity at some point with us with the U.S. Postal Service and other government agencies for our Class 5-6 trucks and potentially for our drones. That's all we'll say for now. So.
Okay. Many last one for me. The arrow demos that you talked about here, I taught myself in the pictures. So with those drones, with those arrow products actually taking off and landing on a work over the truck.
Or is that the next level of public demo? And is there a large difficulty leaf from the old demo of any moving truck demos to make that happen? Great question. Those were not off the truck. The customer, the first customer, we did the demo for where we did the 50 deliveries across six different addresses.
They were done from ground-based locations. At the request of that customer, they want to prove out the concept of being delivered from a warehouse or a fixed location to multiple individual or business locations first.
We did that test and we passed that test. The first month I was here, I went down to that customer, they gave me a three-page list with about 25 specifications to include, you have to have a parachute, you have to be able to deliver off a tether, you have to be able to pull the package back up in case there's an issue with it.
You've got a certain range, you've got to hit a certain payload. We've met every single one of their specifications. It took us almost 18 months to get there. Hell of a lot of work.
We doubled our engineering team, we tripled our software team, we tripled our flight operations team. We have countless hours now and we're pretty confident.
We doubled our engineering team, we tripled our software team, we tripled our flight operations team, we have countless hours now and we're pretty confident. The customer asked us to...
prioritize the fixed location delivery first and then come back to the vehicle delivery. And we have only tested that flight off the old eGens, which were no longer, we have some in service, but we're not building any more of those. And we're going to have to use, we're going to have to modify a W56 and a W750, the TOPS at some point to do that, but that wasn't our priority in 2022 or 2023. We'll probably get to that sometime in 2024.
So great and now that in the next last dance, it sounds very exciting. I'll pass the law. Thank you Thank you, we have reached the end of the question-and-answer session with that I would like to bring the call to a close. We do appreciate your participation. You may just