Workhorse Group [WKHS] Conference call transcript for 2022 q1
2022-05-10 13:17:07
Fiscal: 2022 q1
Operator: Ladies and gentlemen, greetings, and welcome to the Workhorse Group's First Quarter 2022 Investor Conference Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Workhorse Group's Vice President of Corporate Development and Communications, Stan March. Sir, you may begin.
Stan March: Thank you, Doug. Good morning, and welcome to all of you joining us on today's first quarter 2022 results call. Before we begin, I'd like to note that we've posted our results for the first quarter ended March 31, 2022, as well as an accompanying press release and presentation in the Investor Relations section of our website. We've also released our 10-Q this morning. And will be tracking with the posted presentation during the call today, so please follow along either from the link in the press release or through our website directly. And with that, let's get started. Turning to Slide 2. Joining me on today's call are Rick Dauch, our CEO; and Bob Ginnan, our CFO. Moving to Slide 3. We have a straightforward agenda today. Following my brief opening remarks, I'll hand it over to Rick, who will give you an update on the progress we’ve made on our strategic and financial priorities for our first quarter of this year. Bob will then walk us through our financial results for the quarter and touch on our 2022 guidance. We'll then take your questions. Moving to some housekeeping items. On our disclaimer on Slide 4, some of the comments that will be made today are forward-looking and therefore, are subject to certain provisions and subject to the risks and uncertainties. You could find the full disclaimer statement in our Form 10-Q and other periodic filings with the SEC, as well as on today's press release. I'll now turn the call over to Rick Dauch. Rick?
Rick Dauch: Thanks Stan, and good morning, everyone. We appreciate you taking the time to join us today. Turning to Slide 5. Our first quarter was exactly what we expected it would be, a lot of hard work. We put our heads down, execute on our plans and accomplished what we set out to do. Building a rock solid foundation based on our stabilized fixed and growth business model. In football terms, it was all about blocking and tackling. A key element of our progress is continuing to successfully find the right people to strengthen our organization. We further built out our highly experienced leadership team, as well as significantly enhanced our engineering resources and technical expertise. We consolidated and relocated our headquarters in Sharonville, Ohio. The transformation of Union City is tracking the plan. Operationally, we met every milestone on the new product development roadmap we laid out last quarter. We also strengthen our financial position. As a result, we are right on track and executing our revised strategic plan to deliver a family of Class 3 to 6 electric vehicle last-mile delivery products, both on the ground and in the air. Moving on to Slide 6, we continue to make progress in our initiatives across what we call our six Ps: people, products, processes, partners, politics, and profits. Investing in a balanced fashion in these areas is critical to establish a strong foundation to achieve our vision to be a pioneer in the transition to zero-emission commercial vehicles. Our team is incredibly detail oriented and as a relentlessly focused day in and day out on strengthening the building blocks of our foundation. We are confident the plans we have laid out and the progress we are making on these initiatives will enable our transition from a technology startup into an efficient commercial vehicle OEM. We also believe in all the industry trends support that we will continue to benefit from strong industry fundamentals and tailwinds driving transition from ICE to EV power vehicles in our sector. Let me now give you some important details about the progress we made during the quarter. Turning to Slide 7, let me go through the key steps we took in delivering on our strategic priorities and building the strong foundation to grow. First, this quarter, we further built out our experience in talent leadership team. We have hired a new CIO, who has more than 30 years of supply chain and IT leadership experience across the automotive industry at both leading OEMs and Tier 1 suppliers. He has also led IT teams in the government sector as well. We have added a new attorney as Corporate Counsel who brings five plus years of business and commercial law experience to the team. We also have to search well underway to hire a VP of Sales and Marketing with significant commercial vehicle and transportation industry experience. Operationally we have hired a Director of Quality with more than 35 years of quality systems experience at large OEMs, including in powertrain and final vehicle assembly and supplier quality development. Lastly, we have hired a Director of Production Control and Logistics who has 20 plus years of supply chain and LEAN systems experience at major Tier 1 automotive suppliers. Additionally, we have rounded out our principal engineering ranks. We call them subject matter experts and now have them in place for chassis, electronics, controlled and body design work. Look forward to benefit from each of their unique perspectives and insights as we execute from our product roadmap. Moving to Slide 8, I want to talk a bit about the readiness of our facilities. Last quarter, we opened our new vehicle design and testing technical center in Wixom, Michigan to expand and enhance our design engineering and testing capabilities. This center has been a very fruitful investment for Workhorse. We have greatly expanded the breadth and depth of our engineering talent, which has already begun to enhance our designs. And we still have in the budget 15 open personnel requisitions for engineers. Test equipment will be installed originally by fourth quarter of this year, bringing the site to a fully functional level by the end of the year. We continue to make significant progress in transforming and expanding our Union City, Indiana plant into a world-class manufacturing complex. As you can see on Slide 8 in the image in the middle of the left hand side of the slides, the manufacturing plant is relift, repairs and rehabilitation are on track and near completion. The end of line dynamometer is expected to be installed and the facility will be 100% ready for production in Q3 of 2022. We are often asked how we can get to volume productions with only $15 million to $20 million range invested levels we have been discussing. The short answer is because we did not start with a blank piece of paper. We already have a well built plant coupled with a rich history of manufacturing. We also reached an agreement in the quarter to take over two additional factories on our property, further expanding our manufacturing floor space and footprint. As an indication of how important these types of assets and capability are in the EV space. We have been approached by several firms to possibly undertake contract manufacturing for them at our Workhorse Ranch as early as this fall and in next year. We will carefully evaluate these opportunities and we’ll update you when we – when there’s more information to share. As I mentioned in our call in March, we look forward to hosting many of you at our Investor and Analyst Day event in Union City in the fourth quarter. So you can see firsthand what we are now calling the Workhorse Ranch and also get a chance to drive our new generation of electric vans and trucks. We are also pleased that we completed the consolidation and relocation of our headquarters together with our advanced technology team in a new facility in Sharonville, Ohio, we are already realizing improved efficiencies and teamwork across the organization. The new prototype shop at that location is under construction and we expect occupancy to be begin in the Q3 of this year. Finally, we’re in the process of relocating our aerospace team into a larger space in Mason, Ohio, where we plan to start production in 2023. In summary, we have materially repositioned and significantly upgraded our infrastructure in the last nine months. Moving the Slide 9. Let me now provide an update on the progress on our revised product portfolio roadmap to deliver a family of electrical – electric powered commercial vehicles across the Class 3 to Class 6 segments. We accomplished exactly what we set out to do during the first quarter. As we previously communicate, our new product portfolio roadmap includes getting existing C1000’s repaired and back on the road before building out and retiring the model. In parallel, we are focusing our engineering team’s efforts on developed two new truck chassis platforms in 2022 to 2024, while also partner with GreenPower on a third vehicle to bridge the product gap created by the decision to limit future C1000 production. I would also like to highlight that we have recently signed a referral agreement with charge point to support our customers on their electrification journey as they transition to electric last mile delivery vehicles. This partnership connects Workhorse customers with North America’s largest charging network. Turning to Slide 10. Let me walk you through the current status of our major product platforms. Last quarter, we completed FMVSS testing for the C1000 and noted that several corrective actions were required to complete the full vehicle certification. We all fully tested the E-powertrain reliability, structural durability, and the payload capacity of the C1000 and identified several necessary corrective actions required to provide a safe, reliable vehicle to our customers. During the first quarter, we execute on these corrective actions and all FMVSS changes have been finalized and released by our engineering team. Front suspension design and vehicle build materials releases are now complete. Even with a bit of supply chain exposure in Shanghai, we are on track to return vehicles of service starting in August of this year and repair all 161 currently manufactured vehicles by year-end. We plan to manufacture 50 to 75 additional C1000 by the end of the year from inventory currently on hand. We are working closely with a few customers to sell 100% of the vehicles in 2022. Of course, we’ll provide service and repair product support after we retire the model later this year. Turning to the future and the W750 and W4CC, which will serve the bridge, the gap between the C1000 product and feature production of the W56 and W34 platforms. Workhorse and GreenPower finalized several enhancements to the base vehicle and production of the first year is already scheduled. I believe our strategy is still supply chain early for these vehicles is paying off for us. We plan on taking delivery of up to 1,500 chassis from GreenPower, completing the manufacturing process and delivering both cab chassis, the W4CC and finished step vans the W750 to customers in the United States and Canada beginning as early as the third quarter of 2022 and throughout 2023. We are currently here in California at the ACT Expo in Long Beach where the Workhorse team is introducing the W750 step bands and providing Ryder drive with a fully loaded 5,000 pounds W4 cab chassis vehicle. It’ll be the first time since our March 1 announcement that we’ll have demo vehicles for customers to ride in and review. We are already excited to have our first purchase orders for this vehicle family, all of which have successfully achieved California HVIP approval. We expect to realize further sales activities now that customers can see, drive and fully review the vehicle. If you happen to be out here at the show, please stop by the booth and take a look or take a ride. We look forward to continuing to collaborate with GreenPower and delivering the first trucks from our Union City plant. Turning to the W56, which we introduced last quarter as the first new Workhorse fully designed chassis platform. The W56 will serve the Class 5 and 6 delivery step vans and truck market segments. And it builds on Workhorse’s experience building chassis systems for these classes of vehicles. The W56 has our shortest path to a homegrown design, tested and economically viable best platform. It will come in three wheelbase sizes, addressing a TAM, we estimate be approximately $1.7 billion per year. We continue to meet all timing requirements, milestones from the beginning of productions of the vehicles in Q3 of 2023. Our engineering and design teams have made significant progress in the W56 design, sourcing decisions in contract commitments with proven commercial vehicle industry Tier 1 flyers are already in place from more than 50% of the platform, bill of materials. We expect a finalized design intent with supplier partners, aligned for critical, electrical component, chassis and suspension part sourcing decisions by the end of Q2. This will ensure we have a production intent vehicles ready for testing in Q4 this year and be in a position to complete testing and start full production on time in Q3 of 2023. Designing, testing and producing the W56 is the number one program priority here at Workhorse. I manage those program, reviews myself on a monthly basis. We look forward to continuing to update you on our progress on this critical program every quarter. Now turn into the W34, which where we mentioned on our last call is a new Class 3 and 4 chassis that built on a key technologies introduced by the EGEN and the C1000 vehicle designs. This vehicle will feature accessible low floor platform with improve ride handling, efficient lightweight systems and advanced driver technology. We estimate the addressable TAM for this segment of the commercial vehicle industry to be about $10.4 billion per year. We continue to expect the beginning of the production in 2024, which means we’ll benefit from industry tailwinds as new mileage standards and emission standards take effect for commercial trucks in several regions of the country. The bottom line is that we have kept all the programs on time and on budget while adding skill staff to ensure we continue to hit our aggressive milestones. Turning the Slide 11, we are continuing to invest in our aerospace business and drone technologies. We achieved several important milestones that we reached during the quarter, in a very important year ahead of us in terms of product development. Last quarter, we announced that the Federal Aviation Administration provided us with approval of pursuit type certification for the HorseFly TM delivery drone in 2022, 2023. We continue to fly under Part 107 certification. We are in the final development and testing phase for our vehicle launch drones with industry leading payload, range and safe delivery capabilities. Building on the success we have last quarter, obtaining several grants with the U.S. Department of Agricultural, we are also pursuing additional contracts and grants with the USDA to provide monitoring, data procurement and analytics as part of demonstration projects. Through a dedicated development effort, we also designed a market leading package delivery winch in our continuing extensive field testing. We are currently flying to North Dakota and Mississippi to support government programs. On the chassis front, we continue to add engineers and pilots to the team to ensure we can deliver for our customers. We're excited about the potential for market expansion, we are experiencing our drone operations and are exploring additional projects with both federal and state government, as well as larger retailers. With that, I'll now turn the call to Bob to discuss our financial results for the quarter.
Bob Ginnan: Thanks, Rick. Let's turn to Slide 12. Our results illustrate the progress our team continues to make the strengthen our financial position and drive greater operating efficiencies, which will allow us to execute our product portfolio plans to deliver value for customers and shareholders. Sales, net of returns and allowances for the first quarter of 2022 were recorded a $14,000 compared to $521,000 in the first quarter of 2021. The decrease in sales was primarily to the decrease in volume of truck sales in connection with the previous recall of our C-1000 vehicle. Cost of sales decreased to $3.9 million from $6.2 million in the same period last year. The decrease in cost of sales was primarily due to the decrease in volume of truck sales and costs associated with the initial production of the C-Series vehicle platform. Selling, general and administrative expenses increased to $11.9 million from $6.9 million in the same period last year. The increase in SG&A expense was primarily driven by an increase of $2.9 million employee related expenses, including equity compensation from increased headcount and the appointments of our new executive leadership team. Additionally, there was $2.1 million increase in professional services related to legal expenses. The increases were partially offset by $1.4 million decrease in consulting fees due to the company's initiative to reduce reliance on external resources by hiring internal resources. R&D expenses were nearly unchanged at $4 million compared to $3.9 million same period last year. Net interest expense was $2.2 million compared to $14.9 million income in the same period last year. The decrease in interest expense, primarily driven by $0.4 million increase in fair value of our convertible notes in Q1 as compared to a $15.5 million decrease in the fair value prior year. Additionally, we recognized the gain on the forgiveness of our PPP Term Note during the three months ended March 31, 2021, which is non-recurring during the current period. Other loss decreased to no loss compared to $136 million of the same period last year, decrease in other loss was related to unfavorable changes in fair value of our prior investment in Lordstown Motors Corp, which was sold entirely in Q3 of 2021. Net loss was $22 million compared to a net loss of $120 million in the same period last year. Loss from operations in the first quarter was $19 million compared to $16 million in the same period last year. Turning to Slide 13. As of March 31, 2022, the company had approximately $160 million in cash and cash equivalents. On April 6, 2022, the company entered into an agreement with High Trail Capital to change outstanding 4% senior secured convertible notes for approximately 29.7 million of the company's common stock. This transaction eliminates the remaining debt and workforce balance sheet, and we're really excited about what we've accomplished on this front, strengthen our financial position has been a key priority. With the deleveraging complete, we now have additional time, flexibility and the ability to focus our full financial resources on key investments in our people and the business. So we can execute our plans. Our capital spending plans for 2022 remain unchanged at between $25 million and $35 million. Slide 14 covers our 2022 guidance, which we are reaffirming, as we continue our plan progressive ramp and manufacturing, assuming supply chain visibility remains unchanged. We continue to expect to manufacture and sell at least 250 vehicles and generate at least $25 million in revenue. Our guidance for the year is also backloaded, so we're still not expecting to produce any vehicles in the first half of 2022. I’ll now turn the call back to Rick to wrap up the call.
Rick Dauch: Thanks, Bob. I wanted to briefly discuss our Q2 priorities on Slide 15. We intend to complete the critical executive level staffing here at Workhorse, focus on commercial, engineering, supply chain and IT systems, following the significant hires we made over the past nine months. We will execute on our product roadmap timelines. We will continue the expansion and the renovations at the Workhorse Ranch in order to launch products in Q3 of this year. The team will begin to both acquire, transfer and install test and validation equipment at both Michigan and Ohio technical centers. We also expect to complete the first phase of common system deployment, in terms of production, LEAN systems, ERP and HRM systems. And finally, we expect to secure customer order commitments for our new products, W750/W4CC and the limited number of C-1000 bands we expect to repair and build this year. Before we turn the call over to Q&A, I want to reemphasize three important points from our call today on Slide 16. First, we are doing exactly what we said we would do to build a rock solid foundation to the company. And that always starts with people and a strong balance sheet. We have hired experience, capable executives from critical positions, strengthen our operational, supply chain and technical capabilities. And we solidified our financial position by removing all debt from our balance sheet. Second, our strategic product roadmap plan is on track and we made important progress during the quarter. We will be the pioneers in the transition to zero emission commercial vehicles, targeting specific classes of vehicles in the Last Mile Delivery segment. And third, based on direct feedback, we remain confident in the opportunity to head to deliver electric vehicle. So our customers that they want and in turn we’ll deliver long term shareholder value. That concludes our prepared remarks. Thank you again for your time this morning. We look forward to continuing to update you on our progress. And we’re now ready to open the call to your questions. Doug, please provide the appropriate instructions. Operator, still there?
Operator: Yes, I am. Sorry I was on mute. Our first question comes from the line of Colin Rusch with Oppenheimer and Company. Please proceed with your question.
Colin Rusch: Thanks so much guys. Could you talk a little bit about the customer dynamics now that you’ve got a broader portfolio of trucks, you’ve shown some evidence that you’re going to be able to deliver on these things. Just talk about how much leverage you’re gain with those customers and the depth of demand that you’re starting to see with those folks as you move forward with those relationships.
Rick Dauch: Colin, you said about the customer dynamics.
Colin Rusch: Yes. The customer dynamics. Yes, the relationships and how broadly they’re accepting the range of vehicles.
Rick Dauch: We’ve had several means with our customers. Some of the original customers we had for the C1000, we were able to bring them into Union City as you remember to demonstrate the W4CC and they drove the vehicle. They gave us positive feedback that actually gave us direct input on how well we think we can sell the cab chassis version of the W750. So that gave us a very good confidence. We had a meeting with one of those customers as recently as last Thursday in the Midwest. They’re looking forward to buy several hundred of those vehicles, I’ll say. This week we have first – just the first time we’ve demonstrated a W750. We showed it to our Board of Directors last Tuesday in Ohio. We shipped it out to California and cleaned it up over the weekend, it’s on display. We had a lot of traffic already as we opened the show up last night at 4 o’clock. So we have – after the show ends this week, we have a plan four or five weeks where we’re going to take the vehicles around California and then to a couple other areas in the country to show the customers they can experience and drive them. So I think give me about 45 days, I’ll be able to tell you a lot more. But pretty much the feedback we have is that we’re focused in the right areas, Class 5, 6, Class 3, 4, last mile delivery. It’s a second. That’s not too crowded to be quite honest. And even though we have a setback on the C1000, we think we can still be one of the first to market in that segment.
Colin Rusch: Okay. That’s super helpful. And then just in terms of the people investment that you’re making right now. Certainly what we’ve seen is an awful lot of leverage from software at the operating system level for the vehicles. I’m just curious, how much investment you’re making in software engineers? And how you’re approaching that challenge of getting the operating software for these vehicles really tuned up as you start to bring the market?
Rick Dauch: That’s a great question. I mean, one of the secrets is not just the hardware on these vehicles. As an ex-Tesla driver, I understand how important that software is in that vehicle. We are lucky. One of the good things we had on both the EGEN and the C1000, we had the Metron system where we get feedback about every 10 seconds on every vehicle we have on the road. I think some of the EGENs on the road now for 2017, 2018, we still continue to get that feedback, pretty reliable system we have out there. So I think we’ve doubled our investment in software engineers since I got here. I know we have for sure on aerospace, I think we almost quadrupled on aerospace and we’ve almost doubled on the software side of the house as well. So we understand that’s an important, that’s one of our key areas where we have some open res. The battle and the fight for talent, especially in the software side of the house is really hard. And we got to go out and make sure we get our fair share of the good qualified people.
Colin Rusch: Okay. Thanks so much guys.
Rick Dauch: Thanks, Colin.
Operator: Our next question comes from the line of Jeff Osborne with Cowen and Company. Please proceed with your question.
Jeff Osborne: Yes. Good morning. Thanks for taking the questions. Just a couple on my end. I was wondering, how do we think about the financial ramifications of the remediation of the 161 trucks in the second half of the year? That in addition to what you intend to produce the 50 to 75, how should we think about modeling that?
Bob Ginnan: Well, I think – this is Bob, Jeff. First of all, with the breakdown of inventory that we took in the fourth quarter, we basically any of those trucks that were built, we had to write down a fair value, which is basically when we look at sale price and fair value within the cost to fix. And then we’ve also said that we’ve got some costs to go ahead and fix those as we move through the quarters here. So I think modeling those is reality is the revenue will be there, but the cost will probably approximate the revenues on the C1000. I wouldn’t expect much contribution there from a P&L perspective. However, obviously from cash perspective, they’re very accretive. And that’s how we look at it.
Jeff Osborne: And just to be clear, Bob, that’s the 161, not the 50 to 75.
Bob Ginnan: Correct.
Jeff Osborne: And then the 50 to 75, I assume those would be negative gross margin to start. And then as we move into 2023 and volumes ramp up the gross margins would turn neutral to positive. How do we think about the midterm trajectory on that front?
Bob Ginnan: Well, I think the 50 to 75 C1000, you think it’s a very similar story. The parts on hand are obviously written down. We’ll have to spend some more, so it might be a little bit negative as you said. But it shouldn’t be dramatic.
Jeff Osborne: I got it. And then you’ve had – go ahead.
Rick Dauch: Jeff, the C1000 should be fully built out behind us by the end of the year. And as we transition here in the third quarter, we’ll start producing and shipping the W4CCs. And then in the fourth quarter, we’ll start shipping the W750s, since we’ve got to finalize. We’ve got the design finalized now with sourcing all done to the 750. We start that production in the early fourth quarter. So those are positive gross margin type vehicles for us.
Jeff Osborne: That’s great to hear. Maybe just the last modeling question is on the OpEx front. You’ve certainly added a lot of people and had a lot of shuffling around. Would you, if this were a baseball game, are we in the seventh, eighth inning of that? And is the current sort of run rate with maybe some modest growth in the second half, how we should think about it? Or what’s the OpEx trajectory?
Rick Dauch: Executive levels, the people will directly report to me, will I say we’re in eighth inning. We need a good sales commercial leader here. That person will then get to hire the regional team. You can take a look at the country. There needs to be someone on the West Coast up and down the high five quarter and there need to be someone in the New England region from New York City up and down the high-95 quarter. And then we’ll take a look at what we need in the Midwest or the Southeast, Southwest region, but that can come later. So executive rank eighth inning, I think in the engineering ranks we’re still probably in the third or fourth inning. We’ve got the SMEs on board now, first of all, we got the CTO, and our Head of Vehicle Design within 90 days in the joining the company they’ve gone out and found the SMEs. Several of them had been retired for some of the OEMs. We had to wait for them to get through the first quarter. They’re now on board and they’re out doing their recruiting for the next layer down. And then we got a pretty solid team, right? So, I think we’re early there. Supply chain team, we’ve got to continue to build that up as we continue to ramp up our production. And then we got some work to do in the back offices in the HR, IT and the finance team. We’re probably still early third or fourth inning in those areas.
Jeff Osborne: Got it. And the last one I had was just on the competitive front. You mentioned that with the C1000, the Class 3, that you’re early, but there’s a lot of new entrance that you see on the show floor at ACT last night that are much better capitalized than new folks. And so there’s certainly a lot of people coming in 2023 and 2024. And so I’m just curious, how you view the competitive front as you ramp up?
Rick Dauch: Yes, I’ve been here now just a little nine months. And I got to go to my first ACT show last year. And when I left that show last year, my thoughts were half the companies here are not real companies. They don’t know what it means to build a factory. They don’t know what it means to source parts, test and design vehicles. And I did a quick walk through the show last year. There’s some potential real strong players here who have deep pockets or big sponsors. They’re going to merge. They’re competing in lower space than we are now. They may come into our space down the road, but they still have their handful launching their Class 3 vehicles or Class 2 vehicles. There’s still several companies out here who are in what I’ll call the conversion mode, where they’re a 100% reliant on outside people for chassis. And as you know, in the industry now chassis supply is constrained as the big OEMs are using their valuable parts for more profitable vehicles, I’ll say. So, I feel very comfortable that if we execute on our plans and I’m confident we have the team now to do so that we can be still first to market in our segment. And we’ll see how the chips lay. All right. Talking about building a factory or building multiple factories in a short period versus actually having a factory and retrofiting is a huge differentiator for us here at Workhorse. In my career, I’ve probably built 12 plants or 14 plants. It doesn’t happen in six months, when you don’t build five plants or six plants in 18 months, you go to build plants, takes it minimally here in North America, 18 months to 24 months to buy the land, put the infrastructure in, and all by the way, you have to hire the people. One of our competitors, I know has a beautiful factory. They only have eight hourly people in that factory right now. How the hell are they going to launch in the fourth quarter this year? You tell me.
Jeff Osborne: Thanks for the pointed response. I appreciate it. Thanks, Rick.
Operator: Our next question comes from the line of Craig Irwin with ROTH Capital Partners. Please proceed with your question.
Craig Irwin: All right. Good morning, and thank you for taking my questions. So Rick, the progress since we met last ACT Expo has really been impressive. And I would say the capital structure is the one thing that I would call out as the most visible progress that you’ve made so far. So, I just want to commend the progress that the company. So, as you talk to people yesterday, the first day of the show was there anything new that you were hearing from your customers? Anything people were saying specifically about the vehicle on the floor or the future offering that you’re presenting in collaboration with GreenPower? What can you share with us to help us with visibility on customer uptake?
Rick Dauch: Good question. I was on the floor last night for only an hour and a half, two hours. One of the largest last mile delivery guys came by, we’re all over our vehicle said, this is exactly what we need. Can you also build a larger version? So the version we had in the floor today was 750. That customer said he definitely needs a 1,000 cubic feet and up to 1,200, that’s absolutely in our product roadmap for the W56. The big issue I think we heard right now is this a strong demand, a strong that we expected when we start this journey for the cab chassis version. There are people in this industry as you know in the commercial vehicle, there’s a lot of upfiters while we were originally focused on last mile delivery, it looks like we could sell some electrified cab chassis vehicles that can then go to upfiters and make, but whether they want to refront or a box or a flatbed. And I think we’re learning as we’ve come into this industry and just how complex the upfiting portion of the business is. Okay. That’s one. Two, I think one thing that’s common from last year to this year is the infrastructure has to be in place. And we saw the infrastructure bill that came out last year with about $15 billion towards infrastructure both for EV vehicles and also for buses. So we hope to participate in some of that. In recent, we’ve seen some of the initiatives by Department of Energy put forward investments and low cost loans for battery manufacturers here in North America. So I think the two risks for the industry are infrastructure and battery supply. I don't think battery costs are coming down as fast as people projected. I had one customer asked me why I can't get to a $100 kilowatt hours. And I offered him, I said, you go buy the batteries for me, and I'll give you $100 kilowatt hour batteries. And he couldn't do that right now. Only Tesla can do that right now, because they are building 1.2 million vehicles. So those are the two big linchpins I see. But the tailwinds based on everything, we see the demand by investors for ESG type companies and the commitments by some of the largest fleets in the world, especially here in North America to be carbon neutral by 2035 or 2040 are real. And so that means we got to be able to have the right vehicles and then we have to have the right infrastructure to do it. That's part of our reason to go work with ChargePoint. I got to go out there and toured their facilities out in California earlier in the quarter. Very impressive, good array, not just hardware, but software as well. And so fleets have to figure out how to make this transition too.
Craig Irwin: Thank you for that. So I was hoping you might be able to give us a little bit more color on the trucks you're making in partnership with GreenPower. I know you're the kind of guy that doesn't make announcement, doesn't make commitments like this lightly. And there is an understanding that there was a down payment made to GreenPower. Can you talk about your confidence in the customer demand? You obviously do see something you consider very, very real to put that cash down to make the vehicles. And then what are you learning about this partnership? I mean, how is this something that could potentially grow the capabilities of Workhorse longer term?
Rick Dauch: Bob, do you want to comment about the down payment we ordered and I'll come back about the…
Bob Ginnan: Yes. So when you look at our existing partners, there's a kind of one time down payment we made and then there's a deposit we make on each chassis order. And so that's one time occurred in the first quarter in cash that we used, $6.4 million was for that down payment. And then that'll be recovered over time as we actually receive and pay for the chassis. So that was big – just big chunk of our cash flow for the quarter.
Craig Irwin: Understood. Understood. And actually, since we're talk – we're talking about cash flow, it seems that SG&A had a fairly heavy contribution of non-cash items. Can you help us sort of unpack the $11.9 million down to a dense like cash number? I know stock comps a part of it, but…
Rick Dauch: So, yes, we had $11.9 million SG&A of which about $2.3 million was non-cash stock comp. As we've been building out the management team and that hitting the P&L side, but obviously not the cash side. And then you got a little bit of appreciation there, but it's kind of a rounding error, but really it's the stock comp that gets us down to probably a more cash equivalent, even though it's on the P&L side of about $9.2 million.
Craig Irwin: Excellent. Thank for taking my questions. I'll hop back in the queue.
Rick Dauch: Hey Craig, let me just – I'll make a couple comments here. So in terms of GreenPower, I'm really happy with the progress we made. It took us most of the first quarter to iron out the agreement from a legal standpoint. We have like a 58 or 68 page legal agreement between us and GreenPower, pretty detailed. We initiate a weekly programming use at the presidential level that's happening. Then we do a monthly program review at my level. To give you an example on the W4CC, we're able to have some of the modifications we want for the North American market actually installed at GreenPower’s factory in Asia, which saves us some of them have transferred that. The box install for the W750 that's all been sourced to a local supplier here in North America. That's what we have here at the show, and we're working very closely to follow all those sourcing. I think they have got over 300 parts, they've got to source themselves. And then we're working with that supplier to make sure we build our manufacturing plant at Union City. We're starting to lay out the inventory flow of both the cab chassis that come from Asia through California, how much we're going to have on the ground Union City, what our production time is. We've already got the tack times there, and then how much we're going to have in our finished pool versus how much is going to go right to our customers. So we're doing a lot of detail work. It's what I'll call mind numbing engineering and mathematical work both from a supply chain and engineering standpoint, but we're confident we get there. And we we're at our price points we expect to sell in the marketplace on our customer feedback and the margins we think we're going to be in. Hopefully that gives you some color on the upcoming launch of the W750/W4CC.
Operator: Our next question comes from the line of Greg Lewis with BTIG. Please proceed with your question.
Greg Lewis: Yes, thank you, and good morning. Just one question for me. Rick, you kind of mentioned it in your prepared remarks about the potential to kind of expand around union and had contract manufacturing, realizing that, the focus now is on getting your trucks out the door over, I don't know, the next 12, 24 months. Could you talk a little bit how you see the potential move into contract manufacturing, playing out for Workhorse?
Rick Dauch: Well, Greg, I think we didn't – when I got here, I didn't think we planned on doing contract manufacturing, but the fact that a lot of the EV companies don't even have factories, a lot of them are doing install, build type situations. I think we are caught pleasantly surprised by the inquiries we have. We have multiple inquiries right now. The challenge we have is okay, can we handle everything we're doing ourselves, which is a hell of a lot between C1000, W750, W4CC, W56, W34. Can we not distract the organization by taking on contract manufacturing? The good news is we hired a VP of Manufacturing Services in late first quarter. He has the bandwidth right now to take on some of the quoting activity with our finance team. And so we have at least one quote out there right now, we'll find out whether, we're selected to be that contract manufacturer here in the next 90 days. And we are entertained another one right now, which is a, another electric vehicle, a different Class of vehicles. And so it goes back to our vision of being a pioneers in the transition to zero mission commercial vehicle. So I think we can do it. I think we have the floor space, we'll have to add for talent, specifically supply chain and program management, and we can get the hourly people for sure that Union City Hungary location where we're used to employ well over 800 people in the pay day. And now we're only doing about a 100, so the community wants us to be successful and we want to win up in Union City.
Greg Lewis: Okay, great. Hey, thank you for that.
Rick Dauch: Thanks, Chris. Great.
Operator: Our next question comes from the line of Mike Shlisky with D.A. Davidson. Please proceed with your question.
Mike Shlisky: Hi. Yes. Hello guys. Good morning. I wanted to maybe touch first briefly on the OpEx outlook and the OpEx in the last quarter here. I want to confirm it. It was a $2.1 million increase in professional services on legal. Was that one time in nature? And that's my first part of the question. And the other part was when you consolidated into Sharonville; did that result in any cost savings on overhead real estate, et cetera?
Bob Ginnan: Sure. This is Bob. So the legal and professional, I would characterize as maybe not permanent, but I can't call it one time either. I think with, all the different things that we've got going on and trying to advance a business, I think will be in that run rate for a little while here. But it's probably not permanent, as far as the OpEx savings on the move. We did, we will save one facility, but I wouldn't, from a modeling perspective, I wouldn't factor in net savings. I think, it'll be a little bit more expensive actually, as we once we get done with everything, the other facility that we're consolidating out of, we actually owned. So I wouldn't build anything from a savings perspective in your model for that consolidation, but Mike, you can't model in, if you don't have enough parking spots for your people, you know, park being in the grass or the parking on the neighbor's parking loft, the facilities we had were I'd say, minor league at best. How's that? So the recruit people in now, we have a world class place, well lift, well equipped, not parking, big prototype area. We can actually fly drones indoors when we finish the prototype center, it's got high roofs. So I'm proud to be sitting there now versus before I used to be embarrassed to bring some people in to get interviewed here. How's that, can't put a number on that. And I would say, especially as the finance person, that it's hard to put any kind of numbers on this, but just having people in the same room, the collaboration's already improved just in the short time and can't value that, but it's definitely been powerful.
Mike Shlisky: Sure. That makes sense. Can I turn to the orders for the 750 is that your first purchase order? Can you maybe share a little bit of detail there? Is it more for a previous C1000 customer? Someone told me new and can you share if it's the event or just the chassis cab?
Rick Dauch: Actually, it's not with a previous customer it's with two different customers. We're not publishing; I don't think yet right now, who those customers are. We had dinner with one of those customers last night; they explained how big their fleet is at North America. The opportunity to move from ICE-powered vehicles to EV-powered vehicles is significant. Also in that meeting we had last night with was one of the largest commercial vehicle operators in all of North America. And they told us their plan between now and 2025 is converted 50% of their vehicles to EV-powered systems. And so we're pretty encouraged by those opportunities right now.
Mike Shlisky: Great. I also want to ask about the split between the W750 and the chassis cab model. Are there any impacts differently, financially? I mean, if you're not doing the outfit yourself there, there's probably a C1000 EBITDA that you're not going to be getting, but from a margin perspective, is it similar if there's any time changes there between the two models?
Bob Ginnan: Yes. So, as you pointed out, obviously the revenue, the margin's a little bit less on the shift, we've shifted quite a bit to the cab chassis. However, I would say that the EBITDA impact is not huge probably in the $1 million to $1.5 million range.
Mike Shlisky: You mean overall?
Bob Ginnan: Overall, yes.
Mike Shlisky: And you say $1 million to $1.5 million. Okay. All right great.
Rick Dauch: Yes. Thanks Mike.
Mike Shlisky: Yes. Thanks so much guys. Appreciate it.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.
