Q1 2024 Workhorse Group Inc Earnings Call
Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. Our question and answer session will follow the formal presentation. You may press star 1 at any time to be placed in the question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Stan March, Vice President, Corporate Development and Communications. Please go ahead.
Operator assistance, Please press star zero on your telephone keypad.
Speaker Change: Question and answer session will follow the formal presentation.
Speaker Change: Press Star one at any time should be placed in the question queue.
Speaker Change: As a reminder, this conference is being recorded its now my pleasure to turn the call over to Stan March Vice President Corporate development and Communications. Please go ahead Sir.
Stan March: Thank you, Kevin. And good morning.
Stan March: Thank you, Kevin and good morning, I'd like to welcome all of you to our first quarter 2024 results call for workhorse before we begin I'd like to note that posted that we posted our results for the first quarter ended March 31, 2024 by a press release earlier. This week you can find.
Stan March: I'd like to welcome all of you to our first quarter 2024 results call for Workhorse Group. Before we begin, I'd like to note that we posted our results for the first quarter and March 31st, 2024 via press release earlier this week. You can find the release and a presentation, which was released this morning, in the Investor Relations section of our website. We'll be tracking along with the presentation during this call.
Stan March: The release and a presentation, which was released this morning in the Investor Relations section of our website, we'll be tracking along with the presentation. During this call.
Stan March: Also joining me on today's call are Rick Dauch, our CEO, and Bob Ginnan, our CFO. For today's agenda, please turn to slide three of the presentation. Following my opening remarks, I'll hand it over to Rick, who will give you an update on the progress we've made recently on our strategic and operational actions. Bob will then walk us through our financial activities and results for the first quarter. Rick will then wrap up with our near-term objectives before we open the call to questions.
Also joining me on today's call are ripped out our CEO and Bob can add our CFO.
Stan March: For today's agenda. Please turn to slide three of the presentation. Following my opening remarks, I'll tell you I'll hand, it over to Rick who will give you an update on the progress we've made recently on our strategic and operational actions.
Stan March: Bob will then walk us through our financial actions and results of the first quarter. Rick will then wrap up with our near term objectives before we open the call to questions.
Stan March: On slide four, you can find our disclaimer, as some of the comments that will be made today are forward-looking and are, therefore, subject to certain provisions and are also subject to risks and uncertainties. You can find the full disclaimer statement in our periodic filings with the SEC, including the 10-Q filed on May 20th, as well as the earnings press release also published that day. Now I'll turn the call over to Rick Dauch. Rick?
Stan March: On slide four you can find our disclaimer as some of the comments that will be made today are forward looking and are therefore subject to certain provisions and are also subject to risks and uncertainties. You can find the full full disclaimer statement and our periodic filings.
Stan March: <unk> filings.
Stan March: With the SEC, including the 10-Q filed on May 20th as well as the earnings press release also publish that day.
Now I'll turn the call over to Rick <unk> Rick.
Richard F. Dauch: Thanks, Stan. Hello, everyone. Thank you all for taking the time to join us today. As Stan said, this is our call to review our first quarter earnings, but today we're going to focus most of our time talking about many of our achievements in April and May, which have been significant. We've made positive strides in advancing our product roadmap, executing our strategic plans, and strengthening our financial position.
Dan: Thanks, Dan Hello, everyone. Thank you all for taking the time to join us today.
Rick: As Dan said this is our call to review our first quarter earnings, but today, we're going to focus most of our time talking about many of our achievements in April and May which have been significant.
Rick: Made positive strides in advancing our product roadmap executing our strategic plans and strengthen our financial position.
Richard F. Dauch: These efforts are enabling Workhorse to remain a segment leader in the transition to commercial EVs, specifically in the last mile delivery step band and work truck space. Turn to slide five, and let's talk about our... We have received substantial orders for both our W5-6 and W4-CC trucks. We continue to hold successful product demonstrations with dealers and fleet operators, and both groups are affirming the strong market potential of our commercial EV trucks, specifically the W56.
Rick: These efforts are enabling workhorse remain a segment leader and the transition to commercial Evs, specifically in the last mile.
Rick: Let me step back and work truck spaces.
Richard F. Dauch: Second, we are expanding our commercial network by adding new dealers, including two locations in New York City, a critical location for EV adoption and some in the near future. We've also added two locations in the upper Midwest and Northwest region, and we're on track to hit our target of 15 to 20 nationwide dealers by the end of 2024. Third, we have an encouraging path forward for the aerobic... As we previously announced in February, our Board of Directors approved a plan to transition exclusively to operating as a less capital-intensive drones-as-a-service business. Accordingly, we have halted the production of our drone design and manufacturing business and mothballed that equipment.
Rick: Turning to slide five let's talk about our achievements.
Rick: We have received substantial orders for both our W. Five six MW four so you see trucks.
We continue to hold successful product demonstrations with dealers and fleet operators and both groups are affirming this strong market potential of our commercial EV trucks, specifically the W. Five six.
Rick: Second we are expanding our commercial network by adding new dealers, including two locations in New York City.
Rick: Critical location for easy adoption and incentives in the near future.
Rick: We've also added two locations the upper Midwest and northwest regions and we're on track to hit our target of 15 to 20 nationwide deal is by the end of 'twenty 'twenty four.
Rick: Third we have an encouraging path forward for the Aero business.
Rick: As we previously announced in February our board of Directors approved a plan to transition exclusively to operating as a less capital intensive drones in the service business.
Rick: Accordingly, we have halted the production of our drone design and manufacturing doesn't send mothballed that equipment.
Richard F. Dauch: We are now close to completing an agreement to divest the aero business to a buyer that can invest in its future growth. This move will also provide us with additional financial flexibility here at Workhorse. Finally, over the last several months, we have taken several steps to strengthen and extend our financial runway. Prairie Workhorse has emerged as a winner in the EV market as the industry transitions to that technology. That said, I want to acknowledge the Workhorse team and our supplier partners.
Rick: We are now close to completing an agreement to divest the aero business to a buyer that can invest in its future growth.
Rick: This move will also provide us with additional financial flexibility here at workhorse.
Rick: Finally over the last several months, we have taken several steps to strengthen and extend our financial runway preparing workhorse you merged in the winter in the EV market as the industry transitions to that technology.
Rick: That's what I wanted to know is the workhorse team and our supplier partners.
Richard F. Dauch: A number of the difficult but necessary steps we have taken over the last several weeks have impacted our people and some of our stakeholders. We've reduced our headcount and had to temporarily furlough our employees at our Union City plant. We have incredible respect and admiration for our employees, and we pride ourselves on being a local employer in our community.
Rick: A number of the difficult, but necessary steps, we have taken over the last several weeks have impacted our people and some of our stakeholders.
Rick: We've reduced our head count and had to temporary furlough our employees at our Union City plant.
Rick: We have incredible respect and admiration for our people and we pride ourselves on being a local employer in our communities.
Richard F. Dauch: As we navigate the near term and the transition to EVs, we're focused on returning our team to work when additional truck orders are received. I'm confident that we are making progress on the sales front. Moving to slide six and turning to our commercial vehicle programs, as I mentioned during the first part of the year, we have held a number of successful product demonstrations with last mile delivery companies and have been in constructive and meaningful discussions regarding purchase orders with these customers.
Rick: As we navigate the near term and the transition to Evs or focus on returning to our team to work what additional truck orders are received.
We are making progress on the sales front.
Rick: Moving to slide six and turning to our commercial vehicle programs as I've mentioned during the first part of the year. We have held a number of successful product demonstrations with last mile delivery companies and they've been in constructive and meaningful discussions regarding purchase orders with these customers.
Richard F. Dauch: They are thoughtfully working through their own capital expense plans in order to make the transition to zero emission vehicles, which will take multiple years to complete. Remember, it takes time to install the charging system infrastructure before they get the vehicle, so that's critical.
Rick: They are thoughtfully working through their own capital expense plans in order to make the transition to zero emission vehicles, which will take multiple years to complete remember it takes time to install the charging system infrastructure before they get the vehicles, that's critical and we'll talk about that a little bit.
Richard F. Dauch: We'll talk about that in a little bit. We have received orders for a total of 68 W56 step bands to date. We view this as a strong part to grow the sales pipeline for this vitally important product. We are also working on developing new W5-6 wheel-based variants, which will launch in 2024-26, including the new 208-inch wheelbase 1,200-cubic-foot van which launches late this year. We also received the purchase order for 141 W4CC chassis from Kingsburg Truck Sales, our dealer of the year in 2023, for delivery over the coming quarter. This is a big milestone as it will essentially clear all of the Class IV finished goods inventory remaining at Union City.
Rick: We have received orders for a total of 68 W. Five six step vans debate.
Rick: We view this as a strong parts of growing the sales pipeline for this vitally important product line.
Rick: We are also working on developing new W. Five six wheelbase variance, which will watch in 'twenty 'twenty four 'twenty six.
Rick: The new 208 inch wheel base 1200 cubic foot van which launches later this year.
Rick: We also received the purchase order for 141 W. For C. C chassis from Kingsbury truck sales our dealers a year in 2023 for delivery over the coming quarters.
Rick: It's a big milestone as it essentially clear all of the class for finished goods inventory remains at Union City.
Richard F. Dauch: We believe the KTS order indicates the initial transition to EV commercial vehicles is slowly starting to take place in California, especially small work trucks. As you will see on slide five, we have now expanded our dealer network and service footprint by adding Malia Truck Sales and the Ziegler Truck Group to our certified dealer network. We now have a total of 12 dealer partners strategically targeted in states adopting the CARB Clean Fleet standards over the next few years. At Stables, we continue to grow our EV fleet and expand our delivery routes with the FedEx ground here north of Cincinnati. We have deployed two W5-6 step bands in addition to our 10 W7-50 step bands.
Rick: We believe the K T S order in the case of the initial transition to EV commercial vehicles are slowly starting to take place in California.
Rick: We have small work truck fleets.
Rick: As you will see on slide five we now have expanded our dealer network and service footprint by adding belyea truck sales in the Ziegler truck group or to our certified dealer network.
Rick: Now have a total of 12 dealer partners strategically targeted and states adopting the carb clean fleet standards over the next few years.
Rick: At stable, we continue to grow our E D fleet and expand our delivery routes with the Fedex ground and here at North of Cincinnati.
Rick: We have deployed two W. Five six that bands. In addition to our set of 10 W. 750 step downs.
Richard F. Dauch: We expect the whole fleet to be fully electrified in 2024, and our initial data shows a significant improvement in operating cost savings using ED-powered trucks, which we have shared with some of the large fleets in the last 90 days. This week the annual ACT trade show was held in Las Vegas, and this is one of the reasons we pushed our earnings call to today. I want to share with you our observations from this four-day event, given the concentration of competitors, partners, suppliers, regulators, and customers who attended the event.
Rick: We expect the whole fleet to be fully electrified in 2024 and.
And our initial data shows shows a significant improvement in operating cost savings using the E powered trucks, which we shared with some of the large fleets in the last 90 days.
Rick: This week the annual a C. T trade show was held in Las Vegas, and this is one of the reason we pushed our earnings call today.
Rick: I want to share with you our observations on this four day of that given the concentration of competitors' partners suppliers regulators and customers who attended the event.
Richard F. Dauch: First, significant R&D investments continue to be made in EV technology and vehicles by all major commercial truck OEMs and several remaining startups. Second, the first signs of orders, mostly in California, are starting to emerge across both small local and larger national companies.
Rick: First significant R&D investments continue to be made and easy technology in vehicles by all major commercial truck Oems and several remaining startups.
Rick: Second the first signs of orders, mostly in California are starting to emerge across both small local and larger national fleets.
Richard F. Dauch: Third, the adoption and enforcement of the new CARB mandates is causing some confusion, especially for smaller fleet customers. In the class 4-6 segment, fleets in California must now register their entire fleet with the state and must target a 9% EV adoption rate by 12-31-24. This causes some administrative challenges for some of the smaller fleets.
Rick: Third the adoption and enforcement of the new car mandates is causing some confusion, especially a smaller fleet customers.
Rick: In the class four six segment fleets in California must now register their entire fleet with the state.
Rick: <unk> must target of 9% of the easy adoption rate by 12 31 24, this is causing some administrative.
Challenges for some of the smaller fleets right now.
Richard F. Dauch: Finally, I'm sorry, there are two or three OEMs targeting, there are only two or three OEMs targeting the Class 5-6 debt band market, and Workhorse continues to be the only OEM that is capable of building both the chassis and full step-in cab and body under one manufacturing group in North America. Our W4CC continues to be the only Class 4 cab and chassis EV offering in full production. Many talk about production, but they aren't in production, and are capable of providing 5,000 pounds of payload capacity within a range of 150 miles.
Rick: Bali.
Speaker Change: I'm sorry, there are two or three Oems targeting there are only two or three Oems targeting the classified six step band market.
Speaker Change: And workforce.
Speaker Change: Continues to be the only OEM that is capable of building both the chassis and full step van cab body under one manufacturing group in North America.
Speaker Change: Our W. For C. C continues to be the only class for cabin chassis E offering and full production.
Speaker Change: Many talk about production, but they aren't in production, it's capable of providing 5000 pound payload capacity and the range of 150 miles.
Richard F. Dauch: And finally, what I heard over and over from everybody is charging infrastructure and the availability of charging systems remain a priority across the industry as we make the transition to EVs. That's both for the small fleets I've talked to with our dealers and even the largest fleets here in North America. With that, let me turn the call over to Bob to discuss our financial results and the recent steps we have taken to strengthen our finances.
Speaker Change: And finally, what I heard over and over from everybody is charging infrastructure and availability of charging systems remains pacing items across industry as we make the transition to evs. That's both at the small fleets I've talked to with our dealers and even the largest fleets here in North America.
With that let me turn the call over to Bob to discuss our financial results and the recent steps we've taken to strengthen our financial position.
Speaker Change: Okay.
Robert M. Ginnan: Thanks, Rick. Now, let's turn to slide nine to cover some of the recent steps we have taken to strengthen Workhorse's financial position. In March, we entered into an agreement with an institutional investor on the terms of a series of financing transactions that will provide the company with liquidity in both the short term and over time. This financing will support the continued execution of our Commercial Vehicle Product Roadmap and Business Plan in 2024 and 2025.
Thanks, Rick let's turn to slide nine to cover some of the recent steps we've taken to strengthen the workhorses financial position.
Bob: In March we entered into an agreement with an institutional investor on the terms of a series of financing transactions that will provide the company with liquidity in both the short term and over time.
Bob: This financing will support the continued execution of our commercial vehicle product roadmap and business plan in 2024 and 2025.
Robert M. Ginnan: To date, we have received gross proceeds from this agreement of approximately $15 million before fees, expenses, and original issued discounts. On the cost side, we completed the implementation of a reduction force of approximately 20% of the total workforce, excluding direct labor. We also moved to a drones as a service model in Arrow. We temporarily furloughed the Union City plant workers while we wait for a larger backlog of truck orders. However, limited recall of the staff has already begun.
Bob: To date, we've received gross proceeds from this agreement of approximately $15 million before fees expenses and original issue discount.
Bob: On the POS side, we completed implementation of a reduction in force of approximately 20% of the total workforce. Excluding direct labor. We also moved two of drones as a service model in Aero.
Bob: We temporarily furloughed the Union city plant workers, while we wait for larger backlog of truck orders. However, limited recall of the staff has already begun.
Robert M. Ginnan: Finally, we are also working on the sale and leaseback transaction or alternatives for the Union City facility to further solidify our financial position. Moving to slide 10, let's discuss our first quarter financial results. Sales net of returns and allowances for the first quarter of 2024 were $1.4 million compared to $1.7 million in the same period last year. The decrease was primarily due to lower W4CC vehicle sales compared to the same period a year ago, which was partially offset by an increase in other service revenue generated from operating our stables by workhorse route, drones as a service, and other service revenue.
Bob: Finally, we are also working on the sale and leaseback leaseback transaction or alternatives with Union city facility to further solidify our financial position.
Robert M. Ginnan: Cost of sales for the first quarter of 2024 were $7.4 million compared to $5.3 million in the same period last year. The increase in cost of sales is primarily due to a $2.2 million increase in inventory reserve expense, a $1 million increase in depreciation expenses, and a $600,000 increase in employee compensation-related expenses to support vehicle production during the period. The increase in cost of sales was partially offset by a $1.2 million decrease in costs related to direct materials and $1.4 million reversal of warranty expenses as previously accrued.
Bob: Moving to slide 10, let's discuss our first quarter financial results.
Robert M. Ginnan: General and administrative expense for the first quarter of 2024 decreased to $14.1 million compared to $14.7 million in the same period last year. The decrease in SG&A expenses was driven by a $1.7 million decrease in employee compensation related expenses, primarily due to a decreased headcount, which was partially offset by a $300,000 increase in non-cash stock-based compensation expense and an increase of $600,000 in professional and other services expenses during the pan
Bob: Sales net of returns and allowances for the first quarter of 2024, $1 4 million compared to $1 7 million in the same period last year.
Bob: Decrease was primarily due to lower debt before C. E vehicle sales compared to the same period, a year ago, which was partially offset by an increase in other service revenue generating from operating our staples by workhorse route drones as a service and other service revenue.
Bob: Cost of sales for the first quarter of 2024 were $7 4 million compared to $5 3 million in the same period last year.
Bob: The increase in cost of sales was primarily due to a $2 2 million increase in inventory reserve expense $1 million increase in depreciation expenses.
Bob: And a 600000 increase in employee compensation related expenses.
Bob: To support vehicle production during the period.
Bob: The increase in parcel sales was partially offset by $1 2 million decrease in costs related to direct materials and $1 4 million reversal of warranty expenses previously accrued.
Bob: Selling general and administrative expense for the first quarter of 2024 decreased to $14 1 million compared to $14 7 million in the same period last year.
Bob: The decrease in SG&A expenses was driven by a $1 7 million decrease in employee compensation related expenses, primarily due to a decrease in head count, which was partially offset by a 300000 increase in noncash stock based compensation expense and an increase of 600000 in professional and other services.
Bob: In the period.
Robert M. Ginnan: Research and development expense decreased to $3.5 million compared to $7.2 million in the same period last year. The decrease in R&D expenses was primarily due to reduced consulting and prototype costs as the company moved into production of the W4CC, W750, and W56 vehicles during versus last year.
Bob: Research and development expense decreased to $3 5 million compared to $7 2 million in the same period last year the decrease in R&D.
Bob: This is primarily due to reduced consulting and prototype costs as the company moved into production of Adobe for C. C. W 750 and W.
Bob: W 56 vehicles versus last year.
Bob: Okay.
Robert M. Ginnan: Net interest expense was $5.4 million compared to $6 million of income in the same period last year. Net interest expense in the current year was driven by a fair value adjustment of the company's 2024 notes and 2024 warrants, respectively, of $7 million and $1.2 million fees paid in connection with the 2024 notes and 2024 warrants issued during the period. The expense is partially offset by a gain of $2.9 million from the extinguishment of the company's 2026 note.
Bob: Net interest expense was $5 4 million compared to $6 million of income in the same period last year net interest expense in the current year was driven by a fair value adjustment of the company's 2024 notes in 2024 warrants respectively of $7 million and $1 2 million fees paid in connection with a 2024 notes in 2024.
Bob: Warrants issued during the period.
Bob: Expenses, partially offset by gain of $2 9 million from the extinguishment of the company's 2026 months.
Robert M. Ginnan: Conversion of 2023 warrants and $0.1 million of interest earned on cash balances of the company's money market investment account. Net interest income in the prior year is primarily driven by interest earned on cash balances in the company's money market investment account. The net loss was $29.2 million compared to $25 million in the same period last year. Turning to slide 11 to discuss our balance sheet, as of March 31st, 2024, the company had $6.7 million in cash and cash equivalents. Accounts receivable of $1.8 million, debt inventory of $49.9 million, and accounts payable of $14.2 million.
Bob: Version of the 2023 warrants and $1 million of interest earned on cash balances of the Companys money market investment accounts.
Bob: Net interest income in the prior year was primarily driven by interest earned on cash balances of the Companys money market investment.
Bob: Net loss was $29 2 million compared to $25 million in the same period last year.
Bob: Turning to slide 11 to discuss our balance sheet as of March 31, 2024, The company had $6 7 million in cash and cash equivalents accounts receivable of $1 8 million net inventory of $49 9 million accounts payable were $14 2 million.
Richard F. Dauch: I've already discussed the aggressive actions during the quarter to reduce costs and conserve cash across the organization. Looking ahead, we will continue to focus on extending our operational runway and managing our cash flow efficiency. We've executed successful finances and are working on a sale-leaseback transaction for our unit facility facility. The recent purchase orders also reinforce our optimism about our ability to drive additional purchase orders this year and grow our revenue. With that, I will turn it back over to Rick.
I've already discussed the aggressive actions during the quarter to reduce costs and conserve cash across the organization. Looking ahead, we will continue to focus on extending our operational runway and manage our cash flow efficiently.
Bob: We've executed successful financing and are working on sale leaseback transaction for our Union City facility reached.
Bob: The recent purchase orders also reinforce our optimism about our ability to drive additional purchase orders this year and grow our revenues.
Speaker Change: With that let me turn it back over to Rick.
Richard F. Dauch: Thanks Bob. Let me briefly discuss our near-term priorities, which are outlined on slide 12. Our key strategic priority is advancing our product roadmap, specifically securing new orders and delivering products to more customers. We are engaged in a number of discussions with potential customers and dealers and look forward to providing updates on our new business orders as we move forward. Our operational and financial priorities remain focused on reducing costs and obtaining the necessary capital to execute our plan and meet our current and prospective customer needs.
Rick: Thanks, Bob Let me briefly discuss our near term priorities, which are outlined on slide 12.
Rick: Our key strategic priorities advancing our product roadmap, specifically, securing new orders and delivering products to more customers.
Rick: We are engaged in a number of discussions with a bunch of customers and dealers and look forward to providing updates on our new business orders as we move forward.
Rick: Our operational and financial priorities remain focused on reducing cost and obtaining the necessary capital to execute our plan and meet our current and prospective customer needs.
Richard F. Dauch: Finally, I want to start, or close, by emphasizing that the transition to EV technologies in the commercial truck and last mile segment is starting to take place. Slower than expected, but it's starting. Although, like any change, it will not happen overnight. While we've experienced some delays across the industry, we can see firsthand in our discussions with fleet and municipal customers, dealers, and others that the transition is underway. Slower than we would like, but it is definitely starting to take hold.
Rick: We appreciate the continued support of our supplier partners to wake the acceleration of our product production plants.
Rick: Finally, I want to start a close by emphasizing that transition to <unk> technologies in the commercial truck and last mile segment is starting to take place slower than expected, but it's starting.
Rick: Although like any change that will not happen overnight.
Rick: While we've experienced some delays across the industry, we can see firsthand and are discussing asleep and municipal customers dealers and others that the transition is underway.
Rick: Lower than we would like but definitely starting to take hold.
Richard F. Dauch: We fully intend to emerge as a winner in the Class 4-6 Step Band and Work Truck segments of the Marquee. We have proven our product in the marketplace. We have the manufacturing capacity and supply chain partners in place to build trucks. We have the aftermarket and service capabilities in place, and we have committed dealer partners in place to continue advancing our roadmap and capture the significant opportunities ahead as the transition to EV technology curves across the commercial segment. Workhorse is ready to win when the market emerges. Now we'll open up the call to questions. Operator, I'll turn it back over to you.
Rick: We fully intend to emerge as a winner in the class four six step band in work truck segments of the market.
Rick: We have proven our product in the marketplace, we have the manufacturing capacity and supply chain partners in place to build trucks, we have the aftermarket and service capabilities in place and we have committed dealer partners in place to continue advancing our product roadmap and capture the significant opportunities ahead as the transition to EV technology curves.
Speaker Change: Cross the commercial segments workforce is right to win where the market emerges now we'll open up the call for questions operator, I'll turn it back over to you.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to be placed in the question queue, please press star 1 on your telephone keypad. If you would like to remove yourself from the queue, please press star 2. One moment, please while we poll for questions. Our first question today is coming from Mike Shlisky from D.A. Davidson. Your line is now live.
Speaker Change: Well now be conducting a question and answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Speaker Change: You'd like to remove yourself from the queue. Please press star two one moment. Please what would you poll for questions.
Speaker Change: Our first question today is coming from my Suski from D. A Davidson your line is now live.
Michael Shlisky: Yes. Hi. Good morning.
Speaker Change: Yes, hi, good morning, Thanks for taking my question.
Michael Shlisky: Thanks for taking my question. I wanted to, Hello there. I've been running EV step vans for a couple of years now, maybe not Workhorse brand, but other brands of EVs. I guess it seems like it's already been proven that EVs can work in a lot of different situations for a fleet. So, I'm kind of wondering whether you've still got the need to continue with this program at this point.
Speaker Change: Hello there.
Speaker Change: I wanted to know if maybe you're asking about.
Speaker Change: Stables installs here at.
Speaker Change: At this point, you've got D. H L out there running events for a couple years now in different sizes and other other facts leads in other states also running E. B bench for a couple of years now maybe not workhorse grand but other brands are.
Speaker Change: Evs.
Speaker Change: I guess it seems like it's already been proven that evs can work in and a lot of different situations, where a neat I'm kind of wondering whether you've still got the need to continue with this program at this point and I know, it's very near and Dear to your heart, but I guess why not monetize that for me at this point and kind of move forward.
Michael Shlisky: Stan, I know it's very near and dear to your heart, but I guess why not monetize the fleet at this point and kind of move forward since it's pretty clear that EVs are working for other folks, and there's no need to really keep on proving the point over and over again.
Speaker Change: It's pretty clear that no Tvs are working for other folks and there's no need to really.
Speaker Change: Keep on proving the point over and over again.
Richard F. Dauch: Yeah, Mike, we've had those internal discussions, you know; we've only gotten the W5-6s on to the stables earlier this year. We really wanted to get at least, minimally, six months on that, but you're probably right. It's not our intention to be a long-term owner of the stables operations.
Mike: Yeah, Mike we've had those internal discussions.
Speaker Change: Only got the W. Five six as onto the stables earlier. This year, we really wanted to get at least minimally six months on that but you're probably right. It's not our intention to be a long term owner of the staples operation.
Richard F. Dauch: But we thought it was an important initiative for us from an R&D and from a marketing standpoint, and it served its purpose. I can just tell you that in a recent three- or four-hour presentation to one of the last large mile fleets, we were able to stand up as a FedEx ground operator with over a year and a half of experience now and what it costs to transition from ICE to EV in terms of charging systems, infrastructure tie-in, and what it means to get rid of some of the old trucks and move to the EV trucks. And now we have documented proof that there is a savior.
Speaker Change: We thought it was an important initiative for us from an R&D and from a marketing standpoint, and it served its purpose I can just tell you that in a recent a three or four hour presentation to one of the last large mile fleets, we were able to stand up.
Speaker Change: As a fedex ground operator.
Speaker Change: With over a year and a half of experience now what it costs to transition from ice to EV.
Speaker Change: The charging systems infrastructure tie ins.
Speaker Change: What it means to get rid of some of the old trucks and move to the EV trucks and now we have a documented proof.
Speaker Change: But there is a savings.
Richard F. Dauch: And I won't go into the total cents per mile, but it's significant. And we share that, and that's gotten a lot of attention, and we're working hard with at least two of the last mile fleets based on that data to help them start their transition over to EVs, okay? And as you know, if you go back and look at the history, there have been some starts and some stops as other companies have tried to bring these to market.
Speaker Change: I'll go into the total.
Speaker Change: Cents per mile, but it is significant and we shared that in that's got a lot of attention and we're working hard with at least two of the last mile fleets based on that data to help them start to transition over to <unk>, Okay and as you know if you go back and look at the history. There's been some starts and stops as other companies have.
Richard F. Dauch: Trucks have failed, companies have gone out of business, and so they're looking for people who really have solid bulletproof trucks, and we think we have now over 18 months in the W750 and over four, five, six months now on the W56 on our own routes with almost zero flaws. And then you think that sends a lot of messages about our trucks. As one customer said, you're the only customer that we have or supplier we have right now who actually should run their trucks for more than six or twelve months. Okay, so you're right. Longer term, I think Stables will probably get monetized at some point.
Speaker Change: Tried to bringing these to market shocks of failed companies.
Speaker Change: Companies have gone out of business and so they're looking for people, who really have solid bullet proof trucks, and we think we have now over 18 months and the W. 750, and over 456 months not only W. Five six on our own routes with almost zero loss do you think that that central message about our trucks as one customer.
Speaker Change: They're the only customer that we have a supplier we have right now who actually used to run their trucks for more than six or 12 months. Okay. So you're right longer term I think stable is probably gets monetize at some point.
Speaker Change: Sure. Thanks, I appreciate that Rick.
Michael Shlisky: Sure, thanks. I appreciate that. Maybe turning to some of your more recent benefit orders that you discussed today, are any of those contingent on having a subsidy attached to them, or are they going to be for dealer demo or inventory purposes?
Speaker Change: Maybe turning to some of your more recent David Pitts orders that you did.
Speaker Change: Today or any of those contingent on having a subsidy attached to them.
Or are there going to be for a dealer demo inventory purposes.
Richard F. Dauch: Great question. Almost every one of the W4CC's is tied to some kind of California HVIP incentive, for sure. On the W5-6s, there will be some that are not tied to incentives at all. They go into larger fleets. And then there are some that are tied to the HBIPC credits that are required in California. We know that we have one order for a new... rental fleet, basically, in California that was subject to the HVIP vouchers, and I understand we got those vouchers in the last 24 hours, or that dealer or that customer got them in the last 24 hours. Now we can ship the trucks and get them upfitted.
Speaker Change: Great question almost every one of the W. Four C. CS is tied to some kind of California, H dip incentive for sure.
Speaker Change: On the on the W. Five six years there'll be some that are not tied to incentives at all they go into larger fleets and then there are some that are tied to the age of the credits that are required in California. We know that we have one order for a new.
Speaker Change: Our rental fleet basically in California that was subject to the H strip vouchers and I understand we got those vouchers in the last 24 hours or.
Speaker Change: Or that deal or that customer and got them in the last week. So now we can ship the trucks and get them up to that.
Michael Shlisky: Ah, great. Fantastic. Maybe one last one for me. I, you know, I saw another Workhorse, Strip Chassis, it must have been a W4CC, and it had a dump body on it at a different trade show back in March. I'm curious if you could share with us any progress you've made on non-parcel delivery vehicle orders and customer plans for the current orders that you've got out there today.
Speaker Change: Oh, great Fantastic maybe.
Speaker Change: Maybe one last one for me.
Speaker Change: I saw another I saw our workforce.
Speaker Change: Strip chassis it must have been a W for C C.
Speaker Change: It had a dump body on a different trade show back in March I'm curious, if you could share with us.
Speaker Change: Progress you've made on non parcel delivery vehicle orders and customer plans for the current orders that you've got out there today.
Richard F. Dauch: Sure, all 141 of the W4Cs that are going to Kingsburg are basically for not last mile delivery; they're for electric trucks. We talked to Jerry, the DEMO principal out there.
Speaker Change: Sure all 141 of the W. Foresees that go on in Kingsbury are basically for not last mile delivery there for electric trucks.
Speaker Change: We talk to Jerry.
Speaker Change: Deal with principal out there majority of those trucks here in the us.
Richard F. Dauch: The majority of those trucks are going to be used in California in either three forms or fashions. A state truck, a dump truck, or a utility-type truck, all right? Mostly around, his dealership is in the San Fernando Valley. There is a lot of interest in some of the small agricultural programs and also some of the local distributors out there. So, most of the W4Cs are not for last-mile delivery.
Speaker Change: And California, and either three three forms of fascist a stake truck.
Speaker Change: A dump truck or a utility type truck right, mostly around this dealership isn't that covers the San Fernando Valley, a lot of interest there and some of the small agricultural programs and also some of the local distributors out there. So a lot most of the W. Foresees a not for last mile delivery.
Michael Shlisky: Great. outstanding. I appreciate that. I'll pass it along. Thank you.
Speaker Change: Great Outstanding I appreciate that I'll pass it along thank you.
Mike: Thanks, Mike.
Operator: Thank you. The next question today is coming from Jeff Osborne from TD Calendar Line. It is now live.
Speaker Change: Thank you. Your next question today is coming from Jeff Osborne from TD calendar. Your line is now live.
Jeffrey David Osborne: Hey, good morning. I was wondering, just to post the changes in April and May, if you could just discuss what the burn rate is at these levels.
Jeffrey David Osborne: Hey, good morning too.
Jeffrey David Osborne: Two questions on my side I was wondering just post the changes in April and May if you could just discuss what the burn rate is at these levels.
Richard F. Dauch: I'll let Bob take that one.
Speaker Change: Well, let Bob take that one.
Robert M. Ginnan: Yeah, so I think in the first quarter, once you factor out all of the fighting a few type things, our burn rate was about 5.5 million. However, you know, as we announced earlier, most of the reductions didn't really start till March. So we expect that to be sub 5 million here in the second quarter.
Yeah. So so I think in the first quarter once you factor out all of the.
Speaker Change:
Robert M. Ginnan: Fighting a fee type things, our burn rate was about five and a half million. However.
Robert M. Ginnan: As we announced earlier the most of the reductions didn't really start until March. So we expect that to be sub 5 million here in the second quarter.
Jeffrey David Osborne: And then were there any changes in April or May to lower that beyond the half a million savings there?
Speaker Change: And then was there any changes in April or may lower that beyond that half a million savings there.
Speaker Change:
Speaker Change: I think the changes will be as you get a full quarter of the savings.
Robert M. Ginnan: I think the changes will be, as you get a full quarter of the savings based on timing. The Aero stuff, we only got about a month's worth of savings, and the rest of it, we really didn't get much at all. I think the issue will be, I think the expense will probably be closer to $4 million, but we have to start building back up inventory, so we'll be in that $4.5 to under $5 billion.
Speaker Change: Based on timing, but the arrow stuff, we only got about a month's worth of savings in the rest of it we really didn't get much at all so I.
Speaker Change: I think the issue will be I think the expense will be probably closer to $4 million, but we have to start building back up inventory. So it will be in that.
Four and a half to under $5 billion range.
Speaker Change: We need to move finished good trucks with the orders we have to generate some cash and then go back and buy parts and we can build more trucks, so pretty clear.
Jeffrey David Osborne: We need to move to just good trucks. With the orders, we have to generate some cash and go back and buy parts, so we can build more trucks.
Jeffrey David Osborne: It is pretty clear. That makes a lot of sense, Rick. That leads in perfectly to my next question. I was just wondering if you could just disclose roughly how much inventory you have in hand of finished goods and then, with the manufacturing staffing reductions, I'm just curious about your sort of daily or weekly production capacity, and as you buy that inventory that you just referenced, will you need to rehire these folks back in the third or fourth quarter or what's the plan there as the business resumes growth? Yeah,
Speaker Change: But that may cause such rigs that leaves them perfectly to my next question I was just wondering if you could just disclose roughly.
Speaker Change: Roughly how much inventory you have in hand finished goods and then with the manufacturing staffing reductions I'm just curious like what is your sort of daily or weekly.
Speaker Change: Production capacity and as you buy that inventory that you just referenced where you need to re hire these folks back in the third or fourth quarter or whats the plan there.
Speaker Change: Resumes growth.
Richard F. Dauch: Yeah, I'll let Bob cover the financial numbers on the inventory, then I'll come back and take the production ramp back up.
Speaker Change: Yeah, I'll, let Bob cover the financial numbers on the inventory the I'll come back and take the production ramp back up so.
Robert M. Ginnan: Yeah, the finished goods inventory is about 20 million. And I would say, for the next round of trucks, probably three-quarters of the inventory is in raw materials. So, you know, it won't take much to finish off another Juanito.
Robert M. Ginnan: Yeah. We are finished goods inventories about $20 million and I would say.
Speaker Change: The next round of trucks, probably three quarters of the inventories in raw materials.
So it won't take much to finish off.
Speaker Change: Other.
Speaker Change: 20 to 30 trucks.
Richard F. Dauch: Yeah, for sure. We have batteries on site right now, I think, for 214 sets of W56 trucks. We have some W4CC pre-built chassis available, but we still have to go through them. So as we start shipping those trucks to Kingsburg, we can finish those W4CCs. There's another 40 at a supplier that are waiting to come to us, but we don't want them.
Speaker Change: Yeah for sure so looking back we.
Speaker Change: We have batteries on site right now I think for 214 sets of <unk> W. Five six trucks.
Speaker Change: We have some W for C C.
Speaker Change: Prebuilt chassis available still go through it so as we start shipping.
Those trucks the kingbird, we can finish those W. For C. C. So there's another 40 at a supplier that are waiting to come to us we don't want them right now.
Richard F. Dauch: So ramping up, we were only building about one chassis a day. That's probably where we're gonna be, probably through the month of June, and then we'll see as the orders come in if we need to start ramping up. We're prepared to ramp up between now and the end of the year to like four or five a day, but right now we're at one, one and a half. So you could get to four or five with the staff that's on hand today.
Speaker Change: So wrapping up we were only building about one chassis a day, that's probably where we're gonna be probably through the month of June and then we'll see as the orders coming in if we need to start ramping up we're prepared to ramp up between now and end of year to like four or five a day, but right now we're at one one and a half so.
Yes.
Speaker Change: So you could get to that four or five witness snapped up on hand today then Rick.
Richard F. Dauch: We have got to bring a few more guys back right now. We basically furloughed the plant for a few weeks. We brought a team back in to complete about 25 trucks based on the orders we have. We always continue to have a couple of guys at the plant working through some of the launch issues we have with the paint shop. Not the paint specifically, but it's the pre and post paint.
Speaker Change: We got to bring a few more guys back right now we'd be basically furloughed the plant for a few weeks, we brought a team back in to complete about 25 trucks based on the orders. We have we always continue to have a couple of guys of the plant working through some of the launch issues, we have with the paint shop not not the paint specifically, but it's the pre and postpaid paint. It takes a lot of work to get that done so well.
Richard F. Dauch: It takes a lot of work to get that done, so we'll have to bring back probably another 15 to 20 or more in the near future. That's all I have. It's a good news sheet, thank goodness.
Speaker Change: We'll have to bring back probably another 15 to 20 or more in the near future.
Speaker Change: Got it that's all I had the good news.
Speaker Change: I want to say this publicly right our workforces the best right. They understand how tough this transition is E D.
Richard F. Dauch: Many of them have been at that plant for years or decades. They understand what happens when a plant is idled for a while, not just to the plant but to the community. They want us to win, and they're willing to do what it takes to win. And I appreciate their patience and their diligence. We don't control the pace of EV adoption. That's up to the customers, and there's a lot of factors that are impacting that rate.
Speaker Change: Many of them had been in that plant for years or decades, they understand what happens when a plant is idled for a while not just for the plant to the community they want us to win and they're willing to do what it takes to win and I appreciate their their patients their diligence, we don't control the pace of the EV adoption, that's by the customers and there's a lot of factors that are in play.
Speaker Change: Got that right what I see now is I'm starting to see the cracks in the dam, where even the small fleets are starting to understand they have to register their fleet.
Richard F. Dauch: What I see now is I'm starting to see the cracks in the dam, where even the small fleets are starting to understand they have to register their fleet with the California officials, they understand, and they have to show their plans to get to that 9% target by 1231-24. So we're starting to see some small fleets make orders, that's what you're seeing with the W4CCs, and you're starting to see the big guys realize they have to make the transition, and they are making the transition, but it costs money.
Speaker Change: With the California officials, they understand that they have to show their plans to get to that 9% target by 12 31 24. So we're starting to see some small fleets make orders that's what you're seeing with the W. For Ccs and you're starting to see the big guys realize they have to make the transition they are making the transition but it costs money.
Richard F. Dauch: You know, I was with one large fleet at ACT for about an hour and a half. They laid out depot by depot how they're gonna electrify across the I-5 corridor over the next three years. They know exactly how many trucks they need to buy in California and then Oregon and Washington. It's a mix of class 4, 5, 6, so it's not just a workhorse issue. This is a major capital investment of billions of dollars by that fleet to go to electrification starting in 24, out through 2040. And our truck fits perfectly the W5 specifically for their needs.
Speaker Change: With one.
Speaker Change: Large fleet at ACG for about an hour and a half a day they've laid out depo by depot, how theyre going to electrify across the I five corridor over the next three years from California up to Washington.
Speaker Change: I know exactly how many trucks they need to buy in California, and Oregon, and Washington, It's a <unk>.
Speaker Change: Our class 456, so it's not just a workhorse issue. This is a major capital investment in the billions of dollars by that fleet to go to electrification starting in 'twenty four out through 2040 in our truck fits perfectly the W. Five specifically for their needs.
Jeffrey David Osborne: Excellent. Good luck. That's all I have. Appreciate it. Yes. Thank you.
Speaker Change: Excellent.
That's all I had I appreciate it yeah. Thank you very much.
Operator: Yep, thank you very much. Thank you. The next question is coming.
Operator: Thank you. The next question is coming from Craig Irwin from Roth Capital Partners. Your line is now live.
Speaker Change: Thank you next question is coming from Craig Irwin from Roth Capital Partners. Your line is now live.
Speaker Change: Greg perhaps your phone is on mute.
Hey, good morning.
Craig Edward Irwin: Hey, good morning. Thanks for taking my question. So Rick, at Act Expo, the big conversation with all the EV truck guys was the impact of the battery tariff, right? A lot of people planning for changes, either changed vendors or different cost structures. Can you maybe update us on what you see for Workhorse from the implementation of the battery tariff? What do you think the probable outcome is for you, and do you see this as something that is going to have a minor impact on business?
Speaker Change: Thanks for taking my questions, So Rick and Act Expo the big conversation with all of the EV truck guys was.
Speaker Change: The impact on the battery tariffs right a lot of people are.
Speaker Change: Planning for changes either changed vendors or you know different cost structure can you maybe update us on what you see for workhorse from the implementation of the battery battery tariff what do you think a probable outcome is for you and that you know do you see this as something that you know.
Speaker Change: It's gonna have a minor impact on business or potentially something that could help you in the longer run.
Richard F. Dauch: The short-term is minor. Like I told you, we have 214 sets of the cattle batteries on-site at Union City, so that's about just short of what we need to build the W56s this year based on orders that we expect to either have in-house or expect to come in-house between now and the end of the year. We do see the tariffs; we're assessing that. One of the challenges here in North America is that there just is not the installed capacity that we know of.
Speaker Change: Short term, it's minor like I told you we have 214 sets of the Cabo batteries onside at Union City. So that's about just short of what we need to build the W. Five six of this year based on orders that we expect either having house or expect to come in house between now and into the year we.
Speaker Change: We do see the tariffs were assessing that but one of the challenges here in North America. There just is not be installed capacity that we know and we went out and looked at all the potential battery suppliers. They have north American factories back in 2022 in order to be ready for the 20th relaunched the Wi Fi six and we Couldnt find one so we stuck with cattle and.
Richard F. Dauch: And we went out and looked at all the potential battery suppliers that had North American factories back in 2022 in order to be ready for the 23rd launch of the W56, and we couldn't find one. So we stuck with Cattle and CSI, and they've been good partners for us. They've been very patient with us as we go through our slow launch.
Speaker Change: CSI and they've been good partners for us they've been very patient with us as we go through our slow launch, but we are doing the work right. Now that's all I'll say is what are the long term impacts you know as you know not in our segment, but in the big automotive, they're spending billions of dollars to create their own battery plants, but the other day the tariffs will have an impact.
Richard F. Dauch: But we are doing the work right now. That's all I'll say about the long-term impacts. As you know, not in our segment, but in the big carmakers, they're spending billions of dollars to create their own battery plants. But at the end of the day, the tariffs will have an impact. We've already talked to our friends at Green Power and see what we can do there with that truck. They have other sources outside of China to build that similar truck, and so we'll talk about that in the future.
Speaker Change: We've already talked to our friends at Green power and see what we can do there from that truck. They have other sources outside of China to build that similar truck and so we'll talk about that in the future. So.
Craig Edward Irwin: Great. And then, if I could just ask for just a little bit more color. So some of the guys out there that are using cattle were saying that there are anticipated changes as far as the way cattle will serve the market here in North America, particularly the trucking market. Do you believe that there is a credible path to, you know, sufficient Buy American content on the pack or a similar pack to what you've been having from the same vendor, or would you be looking just at global sources?
Speaker Change: Great and then if I can ask you just a little bit more color. So some of the guys out there that are using cattle were saying that there arent any anticipated changes.
Speaker Change: As far as the weight cattle will serve the market here in North America, particularly the the.
Speaker Change: The trucking market.
Speaker Change: Do you believe that there is a credible path to a sufficient by American content on the pack.
Speaker Change: Similar to what you've been having from the same vendor or you would be looking.
Speaker Change: Global sources.
Richard F. Dauch: I won't comment on cattle-specific plans to either localize here in North America, but I'll tell you that we've had discussions with both cattle producers and their distributor about their future plans, and we're confident they have a plan. Let's see if they can execute it.
Speaker Change: I won't comment on catalyst specific plans to either localized here in North America, but I will tell you that we've had discussions with a battle and their distributor about their future plans and we're confident they have a plan, let's see if they execute it if not we'll look at alternative plans that we know there's a couple of new plants.
Richard F. Dauch: If not, we'll look at alternative plans. We know there are a couple of new plants. There's one at Borg Warner under Acossol, and there are a couple other ones that are being built. And as those plants come online and the capacity ramps up, we'll take a look at it. But right now, we're going to stick with our cattle as long as they continue to process them for us, and they're doing a great job for us.
Speaker Change: There's one at Borgwarner under ACA solve there's a couple of other ones that are being built and as those plants come online and the capacity.
Ramps up we'll take a look at it but right now we're going to stick with our capital as long as they continue to execute it for us and they're doing a great job for us.
Craig Edward Irwin: Great, well, thank you for that. I'll hop back in the queue.
Speaker Change: Great well, thank you for that I'll hop back in the queue.
Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Rick for any further closing comments.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Rick for any further or closing comments.
Richard F. Dauch: No, I appreciate that. I appreciate the questions.
Rick: No I appreciate that I appreciate the questions I appreciate the patience of our all of our stakeholders, including our shareholders.
Richard F. Dauch: I appreciate the patience of all of our stakeholders, including our shareholders. This is not an easy transition. We're prepared for it. Our people are being patient. Our suppliers are being patient. Our shareholders are being more than patient. I appreciate that. We're committed to winning, and we're going to find a way to do so. Thanks, and have a great Memorial Day weekend.
Not an easy transition we're prepared for it.
Rick: Our people are being patient and our suppliers will be impatient are shareholders are being more than patient I appreciate that.
Rick: We're committed to win and we're going to find a way to do so thanks and have a great Memorial day weekend.
Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Rick: Yeah.