Greetings and welcome to the Workhorse Group Inc. Year End 2016 Investor Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Duane Hughes, Chief Operating Officer for Workhorse Group. Thank you Mr. Hughes, you may begin.

Thank you, Doug and good morning everyone. Thank you guys for joining our fourth quarter and year end 2016 update conference call. I’m Duane Hughes, President and COO of Workhorse group. Joining me this afternoon are Steve Burns, our Chief Executive Officer and our Chief Financial Officer Julio Rodriguez. As we’re releasing our 10-K report, we’ll update you on our progress. The 10-K annual report will be available on our website at workhorse.com. I want to call your attention to our safe harbor provision for forward-looking statements that is posted on our website and is part of our year end update. The safe harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our 2016 Form 10-K and other periodic filings on file with the SEC provide further detail about the risk factors related to our business. The format for today’s call will be as follows. First, Steve Burns will lead us all with a brief discussion and update of our key strategic priorities. Next, Julio Rodriguez will take us through the financial performance for the yearend and fourth quarter. Lastly, there will be a question-and-answer period. And with that I’d like the turn call over to Steve Burns, our Chief Executive Officer.

Thank you, Duane and good morning everyone. We had an exciting and a productive fourth quarter and a yearend closing and we’re happy to share those details with you. Additionally, we have announced some significant milestones and exciting projects and we are eager to present those to you as well. Workhorse is a technology company focused on providing sustainable and cost effective solutions to the commercial transportation sector. As an American original equipment manufacturer, we design and build high performance battery-electric vehicles including trucks and aircraft. We also develop cloud-based, real-time telematics performance monitoring systems that are fully integrated with our vehicles and enable fleet operators to optimize energy and route efficiency. All Workhorse vehicles are designed to make the movement of people and goods more efficient and less harmful to the environment. Although we operate as a single unit through our subsidiaries, we approach our development through two divisions, automotive and aviation. Our automotive approach consists of high performance electric and range-extended electric fleet vehicles. First, in the automotive group, I’d like to talk to you about our medium-duty electric delivery vans. Our delivery vans are currently in production and they are in use on U.S. roads by our customers that include companies such as UPS, FedEx, Cintas and Alpha Baking. The real time wireless data from our in-house developed telematic system demonstrates our vehicles’ improved fuel economy by approximately 500%. This is compared to conventional gasoline base truck of the same size and duty cycle. In addition to improved fuel economy, we’re anticipating that the performance of our vehicles on route will reduce long-term vehicle maintenance expense by approximately 50% as compared to fossil fuel trucks. We conservatively estimate that our range-extended electric delivery vans will save our customers over $150,000 in fuel and maintenance savings per truck…

Thank you, Steve, and good morning everyone. 2016 marked the start of the commercial manufacturing for Workhorse as we registered $6.4million in sales from the delivery of battery-electric Workhorse vehicles. The step van vehicles delivered in the year ended December 31, 2016, were a combination of both the range-extended Workhorse E-GEN and the Workhorse E-100 all electric platforms. Pretty much our revenue we showed in 2016 was from the sale of prototype units. The production and delivery of these units marks the start of the revenue phase for our company, signaling the beginning of the wide adoption of this innovative technology that we believe will transform the industry. We will continue to ramp up production and execute delivery of customer orders on a fast pace. Cost of sales for the year was $13.6 with a negative gross margin of $7.2 million. As manufacturing volume increases, we expect to benefit from volume pricing from suppliers. We are also in the process of reducing costs and achieving manufacturing efficiencies through advanced engineering to reach profitability faster than anticipated. Selling, general, and administrative expenses consist primarily of personnel and facilities costs related to our development, including marketing sales, executives, finance, human resources, information technology and professional, legal and contract services. Selling, general, and administrative expenses during the year ended December 31, 2016, were $6.2 million, an increase from $2.8 million for the year ended December 31, 2015. The increase in our SG&A expenses consisted primarily employee salaries and benefits, consulting and investor relations due to the increased activities in the period. Research and development expenses consist primarily of personnel costs for our teams in engineering and research, prototyping expense, and contract and professional services. Union City plant expenses prior to the start of production are also included in research and development expenses. R&D…

Thanks, Julio. I think we are ready to open up to questions.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Kinstlinger with Maxim Group. Please proceed with your question.

Great, thanks. I was confused - did you say there is going to be a press release or a 10-K today. I'm just trying to get some of those numbers. It’s hard to get through them so quickly.

Yes, we released. The numbers should be released as we have submitted them. I think the snow might be causing a little delay in New York, but they're in. So, they should be popping up here if they are up yet.

Okay. And can you talk about how many trucks you delivered in the fourth quarter and maybe split it up between E-GEN and if any E-100 were delivered?

Right, they are all E-GENs and we delivered 57 to customers and then one more to a customer that's trying one. So, we built 58 vehicles.

Great and then that 57 probably is a little bit slower than you may have thought six or eight months ago. So, maybe just take us through the factors. Was it capital constraint? Was it issues with the truck? Was it UPS wasn't prepared for that many trucks to maybe go through the ramp and how you expect it and also to next year?

Well, as far as looking back at last quarter, I think we had said we expected to do 60 in that quarter and doing 58. Christmas, as we know, slows things down. There's a lot of factors. We're happy with that number. As far as going forward, the only guidance I think we've given is that we still fully expect to break even on this segment, the step van segment by mid-2018. It could be accelerated. The light-duty - the success of the light-duty, the W-15 should enable us to start to order parts in much higher volume than we expected, much faster than we would have expected for the step van business. So we're trying to engineer some of those parts into the step van to increase our margins even quicker than we had hoped.

And at what number of trucks is gross margins start to help so that economies of scale give you profitability at the gross margin line?

In the stop van world, it's about 2000. Just put that in perspective, it's probably similar in W-15 and we've already surpassed that number in letters of intent. So, a little different methodology than we did with the step van, because the step van had to be basically proven. It's difficult to say, okay, about 2000 we start to break even, which is a very exciting number. Automotive is a volume business, as you know, Brian, and usually you’ve got a billion-dollar factory to amortize across the weird [ph]. That's why low volume is very difficult to succeed at. And because we purchased our factory and all the IP and everything pretty and clear, we are able to do it at a much lower number. So the 2000 number is we believe very achievable. And like I said, I think we will beat it, but really aren’t given forecasts other than we expect to hit profitability there. But the thing I was trying to say is and I think this is important to note, with the step ups because we had to prove our merit to the world and that's why we selected companies like UPS, because if you passed their rigors that speaks volumes and - but the only way to get to the 2000 was to build them slower in batches of 100 or 200 as we get those type of orders and lose money on those until you get to 2000. With the pickup truck, we don't believe we're going to have to do that, because of the intense preorders upfront, we believe we’ll be able to order all the parts that we buy from suppliers at the volume discount out of the gate. So, we don't intend to ramp up with losses and loss on pickups. We expect it to be gross margin positive right out of the gate with them.

Okay. And then on the expense, now that you got a capital infusion, do you see R&D expenses ticking up as you are working on the W-15? Just talk about your expense base and maybe projected - sorry, not projected, what your cash balance is today?

Well, first let me speak about expenses and R&D expenses in particular. So, once we got selected in September with the Post Office as one of the finalists out of six and all six companies had to - there is five companies now, all had to build vehicles basically from scratch, they're all custom vehicles, in one year and deliver them this September. As you can imagine, building a vehicle in a year is quite an endeavor. So, that dramatically ramped up our R&D expenses. What we really tried to maximize was the number of common parts and software across the W-15 pickup and the Post Office truck, so that we get kind of a two for one type of investment and that's been successful in addition to we've designed it all, so they can run on the same lines, the same assembly lines at the factory. So, really I think we're going to be able to come to market although - for our purposes it's a dramatic increase in R&D. As far as what it would normally cost to do something like this, it is a very, very small fraction of conventional automotive thinking.

But we haven't seen the numbers. You just gave us the year-end, so just tell me what R&D maybe was in the fourth quarter and then on a quarterly basis and maybe what it will look like in 2017 maybe on a quarterly basis or a full-year basis?

Okay. We'll look at Julio.

We had to step out. I think let me grab and report. Sorry about that. I think he got a phone call from the posting.

Well, maybe in the meantime as he is coming back with that, we're almost done with the March quarter. We only have a few weeks. Can you tell us how many trucks you've delivered so far this quarter?

I can't give you that exact number. I can tell you we've delivered to date roughly 140 trucks all together. So, if you can look back historically, you would ask before, Brian, about why 57/58 trucks in the fourth quarter, part of that was we were ramping up to go faster. And due to the holiday seasons and trying to on board trucks in certain depots and so on, we did, I’d say, slow down to pick up coming later. So, we're not giving any exact numbers today, but we are right around 140 trucks delivered through to date. Hey, Julio just back in. You got a couple of questions for you. Brian, I believe you about R&D expenses.

Yeah, I'm curious with R&D in the fourth quarter since we didn’t see the numbers in the release yet. I'm sure it will come out soon. And then with the comments about obviously the next generation vehicles for the Postal Service, as well as the pickup truck that you're working on, which is similar, maybe tell us how much more it'll step up in the fourth quarter level?

Well, again, he is pulling those numbers for you. I do want to say that as we just did the financing a while ago and we made sure that would get us through, this heavy R&D period essentially once we deliver the Post Office vehicles in September, dramatically reduces, of course, unless those little things that come up and same with the announcing and showing the prototype in May for the pickup truck. And it's a little difficult to - we're gearing for end of 2018 for both Post Office, if we win, and for W-15 production to begin. Now, with the Post Office, you have a big yes, no, and you can justify the funding to jump into production. At some point when we get enough preorders for the - and we're approaching that point, when we get enough preorders for the W-15 to justify going into production and that's what we were trying to speak to during my comments, we have a lot more options than we did now, than we have before in order to - how to fund production. But I will let Julio go ahead and answer the R&D questions.

Yeah, we spent 6.1 million in ‘16 and 4.7 in ‘15 and that increase was mainly due to the USPS project and the project that happened in the last quarter.

Particularly I'm curious with all the things going on, development of new vehicles, where is that moving in ‘17? Where is R&D going to look like in ‘17? I think that you have a budget for that right?

We do. We do. I mean I cannot talk to -

We haven't released there anything, Brian, publicly.

But definitely we are going to have a lot of investments in - we would say that since we're debuting or unveiling the concept vehicle in the first week of May and we’ll be delivering prototypes to the Post Office in September, which technically means we're going to deliver those earlier to our VT Hackney partner for bodies and we're showing that the 15 - roughly $15 million we have on hand currently in cash that will get us through those periods. So, the heavy lifting of the development cost, the engineering R&D, will be in that first half of the year, so then we can figure out after the concept vehicle unveiling of the W-15 in May as those preorders come in and then we'll gear up towards production.

But I think you can appreciate with two big, big things like that that could happen, right, the Post Office contract is - conventional wisdom is north of $6 billion, right, and so at least 160,000 vehicles. So, it’s the largest automotive contract ever awarded in the world. So, a big yes, no, on that is difficult for us to determine exactly what we're going to spend on ‘17. I think just intuitively, but I think when we turn our vehicles into the Post Office for testing in September, I think we're going to have a pretty good feel and that may - if we feel great about it, we may start inching towards production a little bit. That's going to be a gut feel, because that big yes, no, doesn't come until March of ‘18 from them. Again the pickup truck was developed such that we would be in control of it as much as once in control of anything. So, we - again there is a threshold that we have that when we hit a certain number of preorders or letters of intent, then we pull the trigger and start moving forward to production. Now, we've already been talking to some of these non-dilutive financing systems that are available to us and because they need to know numbers upfront, right, what production would cost you that sort of thing, so we are in a planning process of it. But the great news is, I think the good news is we are endeavoring to build two vehicles basically mass production vehicles and we don't have to spend very much going in because of our existing factory and expertise and what we’ve done with medium-duty. Essentially we are shrinking our medium-duty stuff down to the smaller vehicles. So, we really get to have a look for very little cost relative to what it would conventionally cost. And then if we get them, then it's a Class A problem to have and figure out how to build them.

Great, thanks.

And our next question comes from the line of Jim Zurich [ph] with Hot Capital. Please proceed with your question.

Hey, good morning, guys.

Good morning.

Hey, one of the things I'm wondering here is obviously the postal service contract is out of your control, but with the pickup truck being in your control, can you maybe give some guide post numerically as to what startup CapEx cost would be to get into production?

Well, again, I'm concerned that we haven't released it publicly, but we have a very good handle on it. It's within our means, given the resources that are available to us for different capital means. So, we're not - it isn't - I can tell you that the conventional thinking that it's a billion dollars to create a new vehicle, we are nowhere near that of course. We're going to do it and I tried to detail it a little in my talk. Just the carbon fiber body enables us to avoid hundreds of millions of dollars in just sheet metal stamping systems. So, we're really trying to do it. Everything we're doing is with an eye of. We must be able to produce these in our existing factory with our existing technology and trying to utilize our vendors as much as possible or outside vendors that really lowers our CapEx.

Okay. Is it fair to say that you would want to be at a production rate that’s gross margin breakeven and initially out the gate with your order book in backlog and preorders in order to begin that?

Yes, absolutely. In those kind of quantities really there is no other choice. You have to. You can't lose money per truck when you're in those quantities.

Yeah. Okay. And I guess as far as the truck, I mean, at what point in time do you think you would be commercially viable from all of the safety crash ratings and all the other components that you have to do to be approved to drive on the highway the commercial vehicle, at what point would that all be done based on what you know now?

We're trying to wrap all that this year, towards the end of this year. There are some things like Four Corners testing by the EPA for the emissions and everything that just you have to go through the seasons for that. But the bulk of the work we believe as far as designing the vehicle and testing the vehicle for those systems will be done late this year and then ‘18 will be consumed with production.

Okay. And can you give a ballpark expense of how much more R&D needs to be spent to get to that point in time?

Well, like I said, we have enough funds secured to get us to the point where the prototype is done. Once the prototype is done and we have enough preorders, then we will commence to do the final bit of engineering. Again everything we do because we're capital constrained, of course, and we're trying to do this very economically and very smart, we take pieces down, right. We want to do all that upfront and not have the orders to purchase. So, given the confidence we have, I think it's okay to say that we would spend about another $30 million in engineering to get it all the way through crash testing and all that.

Okay. That’s a helpful number there. And I guess the other question is just from a cash burn perspective. Can you give any commentary on SG&A? I know you didn't specifically guide to that line item, but just you gave ‘15 and ‘16 numbers about a way to think about it and even if it's just - I know you think 50 on the books and cash to these two big kind of delivery points in time, but I mean how much of that is the SG&A line I guess or is there a way to think about just how much cash you burn on a monthly basis just to kind of keep everything going at the current level?

I'm jumping here first. Maybe Julio wants to jump in. As far as our book is going to be in the R&D column, not the SG&A, right. That won't go up too much. That won't change too much. Now, again we win post office life changes, if we get the number of preorders we're expecting to get on or about the show in California life changes, but currently we're on a pretty steady state path and that 30 million I talked about encompasses everything.

Okay. And then I guess on the R&D, that 30 you're spending, are you guys aware of any other trucks better out there that are all composite that have already kind of gone through this process before?

No, we are not. The closest is that we've seen is not a truck, but the BMW i3, which is a passenger vehicle range extended vehicle that is the closest we've seen. And again some of the outside folks were using not necessarily - we used a lot of Detroit folks for a lot of help at this point, but like the carbon fiber composite for example since Detroit is not familiar with it yet, we're worth firms that are using composite for other purposes. So, we go where the expertise are, but again we're - it's very nice that we're very transparent. Everybody knows we're a small firm. We can't spend the typical billion dollars. So, everything - we have to put pressure on our vendors for them to expand tooling cost, put it per piece back to us in the pieces we buy from them and all they have to do to do that is believe that we’re going to be selling the number that we believe we're going to sell and that's where the preorders really build that excitement.

Okay. All right, thank you. I’ll turn it over.

Thanks.

Our next question comes from the line of Josh Seide with Maxim Group. Please proceed with your questions.

Hi, guys. Can you just talk briefly about the progress or any progress with the FedEx Express program for fuel cell vehicles?

Sure, a lot of work there. It’s us. It's a three way deal. It's us, FedEx Express and the Department of Energy and I think that last one intuitively everybody knows that slows life down a little bit. But we believe essentially just for those who might not follow it, it is our E-GEN range extender, but instead of the BMW gasoline generator in there that would recharge the batteries if they got low, you put a hydrogen fuel cell in there that would do the same function. And so, we're working with a third-party. That actually is working with a third-party for the fuel cell. So, that part is not in our control. But our part we've submitted the vehicle and we we've got through the first part of our part. We don't have any more to do for a little while until they get it assembled. Julio might want to comment on that. Go ahead.

Yeah. The chassis was delivered to the third-party, which is public information, plug and power in New York and we have a team who leaves next week to go up and assist with the implementation of the fuel cell into the chassis.

Understood, that's helpful. Thank you. And can you talk about any progress in talks with online retailers about buying your trucks to lower their delivery costs?

Well, I think everybody - I think everybody is aware of the e-commerce and it’s under a little bit of a mode to disrupt conventional shipping. So, they are players in it. We mostly cater to the incumbents in the business like FedEx and UPS. But there is strong interest from folks that want to kind of get into controlling their own logistics, but not using the tools of old, right. If you're going to get in and you want to change it, if you use the same old tools, you're likely to have the same result. So, there is strong interest from that group in our products. That's all I can really say at this time.

I would say our interest has expanded even more with the introduction of both the W-15 chassis, as well as the USPS chassis. It expands the opportunity for vehicle sizes and so on. So, that's generated even more interest since we've announced those.

Understood, that’s helpful.

I think, Josh, we should talk about the HorseFly. UPS conducted that test that got worldwide attention. We received a lot of incoming phone calls on that. And if drones are going to have a place in the delivery ecosphere in the United States and we believe strongly that they do, especially when you augment them with the truck that’s in the vicinity of where that drone is going to deliver and that's why we filed a patent on it and a lot of people that believe that same thing are contacting us. We work closely with the FAA. We make sure we're compliant with what they want to do and we think that has potential to dramatically change how things are delivered in the United States, which really means increase the number of trucks we sell. Yeah, for our purposes since it’s tied to the truck, we use it to further our truck sales.

Great, that’s helpful. Thank you.

There are no further questions in the queue. I’d like to hand the call back over to management for closing comments.

Good, we just like to thank everybody for listening and for having faith in us and we will confirm if it isn’t available yet the actual financials. If they’re not out yet, should be any minute now. Sorry for that inconvenience. Thank you everyone.

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.