Ladies and gentlemen, greetings and welcome to Workhorse Group Third quarter 2023 Investor 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.

Thank you, Sherry. Good morning and welcome to all of you joining us on today's third quarter 2023 results call. Before we begin, I'd like to note that we have posted our results for the third quarter, ended September 30th, 2023, via press release and have also filed our latest 10-Q and a separate 8-K. You can find this release, as well as the accompanying presentation, as well as the SEC filings in the Investor Relations section of our website. We will be tracking with the posted presentation during the call, so please follow along either through the link in the press release or through the website directly. Joining me on today's call are Rick Dauch, our CEO; and Bob Ginnan, our CFO. The agenda for today can be found on Slide 3. Following my opening remarks, I'll hand it over to Rick, who will give you an update on the success that we've made on our strategic and operational priorities during the third quarter. Bob will then walk us through our financial results for the quarter and our revised 2023 full-year guidance. Rick will then wrap up before we open the call for questions. Our disclaimer can be found on Slide 5 -- excuse me, Slide 4. Some of the comments that we made today are forward-looking and are therefore subject to certain provisions as well as to risks and uncertainties. You can find the full disclaimer statement in our periodic filings with the SEC, as well as in today's press release. I'll now turn the call over to Rick Dauch. Rick?

Thanks, Stan. Good morning, everyone. Thank you all for taking the time to join us today and your continued support of Workhorse. We're here to talk about our achievements and results for the third quarter and the actions we are taking to position Workhorse for both near-term and long-term success. When speaking about the third quarter, what we're talking about is a tale of two cities. On the one hand, we made important steps forward across our product roadmap that will set the stage for us to drive significant profitable growth in 2024 and beyond in all areas within our control. On the other hand, our results this quarter and our outlook for the remainder of 2023 were significantly impacted by our inability to secure HVIP vouchers in the third quarter. I’m pleased to report that we have recently resolved this voucher availability issue with help from the CARB leadership team in just the past week. I'm proud of our team's dedication and hard work here at Workhorse. And just over the two years since taking over the company, we have final vehicle assembly up and running for not one, but three new product lines, the W4C cab chassis, the W750, and W56 step vans. Anyone who understands the automotive industry realizes how tough and costly it is to design, test, and launch new products. And it typically takes at least three to five years. The Workhorse team did it in less than 22 months. At the same time, we now have two sellable drones in the market and are speaking to a greater number of prospective customers on the aero side of the business. Workhorse is now poised to begin our growth phase, and it's a testament to the incredibly talented and again dedicated team we have here today.…

Thanks, Rick. Let's turn to Slide 12 to discuss our third quarter financial results. Sales, net of returns and allowances for the third quarter of 2023 were recorded at $3 million compared to $1.5 million in the same period last year. The increase in sales was primarily a result of the reversal of the sales allowance in the current period related to the sale of W4CC vehicles in the second quarter of 2023. Cost of sales decreased to $6.6 million for the third quarter of 2023 compared to $9.5 million in the same period last year. The decrease was primarily due to a $2.9 million reduction in inventory reserves and adjustments in the same period a year ago as a result of the disposition of C-Series inventory. Lower sales volume in the current period reduced costs by $1 million, which was offset by $1.2 million increase in employee compensation and related expenses as the company continued to expand its Union City, Indiana workforce to support future vehicle production. Selling, general and administrative expenses for the third quarter of 2023 decreased to $11.8 million compared to $34.8 million in the same period last year. The decrease was primarily driven by a $23.9 million reduction in expenses associated with the settlement of securities and shareholder derivative litigation. This was $20 million in a non-cash stock settlement and about $3.9 million in legal fees. Employee compensation related expenses including non-cash stock based compensation expense decreased by $0.4 million compared to the prior period which was offset by a $0.8 million increase in professional services and other IT related expenses. Research and development expenses for the third quarter of 2023 decreased to $5.8 million compared to $6.1 million in the same period last year. The decrease was driven by a $0.9 million reduction in…

Thanks, Bob. Let me briefly discuss our Q4 priorities, which are outlined on Slide 15. I can easily summarize these very quickly. Our largest single Q4 priority is straightforward, to build and sell trucks and drones. That's it, build and sell trucks and drones. Plain and simple. Additionally, as Bob mentioned, we will focus on strengthening our financial position, and reviewing options to enhance our liquidity position so we can achieve our future growth plans. Before opening the line to questions, let me mention a few final thoughts. Being true pioneers in an industry going through a generational technology change is not easy. It's tough, it's hard, and sometimes it's thankless work. No one in America could accurately forecast how fast or how slow the transition to commercial EVs will occur. One thing I do know is that, we now have the people, the products, the manufacturing processes, the qualified suppliers, the experienced distribution partners in place to be ready when that transition does occur. Every fleet customer that has visited Union City and driven our truck has asked for a demo and every demo we have executed in the past 90 days has been successful. The foundations are in place at Workhorse for us to emerge as one of the survivors and winners in the commercial EV industry. We're now ready to open the call for your questions. Operator please provide the appropriate instructions.

Thank you. [Operator Instructions] Our first question is from Greg Lewis with BTIG. Please proceed.

Yes. Hi. Thank you and good morning and thanks for taking my questions. Rick, I wanted to touch a little bit more on HVIP. Clearly, congratulations on getting those final approvals. As we think about it, I guess, there was -- I guess, looking at Q3, there were a handful of trucks sold. How much of those were related to HVIP?

You mean the lack of sales?

Well, I mean, you had 700,000, that looks, I mean -- I'm thinking that's five to six or seven trucks.

Yes, a couple of those trucks went out to some of the new dealers we have as part of our stocking orders. We really are blocked in California. As everybody knows right now, the cost of an electric truck is much higher than an ICE truck, driven mostly by the batteries. The government has put in place both at the state level and now at the federal level some significant incentives to help move into the EV segment. Without those incentives you aren't really going to sell too many trucks. We are seeing some -- not resistance, but I'll say, there's some weariness on the part of the fleets. Are these EV trucks really going to be capable of handling the duty cycles and the payloads and the ranges that they require on a day-to-day basis? I can tell you based on the demos our company has done side by side against others, we're convinced and so are some of the customers that our trucks can do the job. I don't know if they can say that about some of the other guys.

Got you. Thank you for that.

I'm not going to just [indiscernible] name any of the competitors, but EV trucks that are out there, some of the initial prototypes, especially from some of the startups are having some struggles is what I'd say.

Yes, makes sense. And then, so as we think about -- you mentioned the dealer in California. Realizing we didn't disclose name, any sense for the size of that dealer as we think about their track record, maybe in terms of size, any kind of color you can give us around that dealer.

Yes, I'll give you a little color. I won't give you the name. I'll just tell you it's in Southern California. It is a one-brand commercial truck-only dealer. That current brand he carries will not have a viable EV product until 2025 or 2026. And he basically said to us, I'm dead in the water with regards to the EVs in California, and I really want to partner with you guys. I can't do that if you're going to give me trucks without vouchers. And so he waited, very smart, I'd say, on his part. And now he's signed up. We're going to give him some stocking orders yet this year, and he's already working on a deal that's more than 40 or 50 vehicles.

Perfect. Super helpful. Thank you very much.

[Operator Instructions] Our next question is from Chris Souther with B. Riley Securities. Please proceed.

Hey, guys. Thanks for taking my question. I was just curious on the review of the aerospace. Can you give us a sense of what like the -- cash earned from that segment is today? Just wanted to kind of frame. Yes, we're looking at like strategic alternatives and reviewing that business like what the impact on the financials is from that.

Hey, Chris, it's Bob. Currently, we're spending about $700,000 a month in Aero, down from previous in the year, but that's kind of where we are right now.

Got it, okay. And then, on the overall kind of CapEx trajectory, how should we think about where we are as far as kind of readying the plant for scaling? Is there kind of additional CapEx that we really need to kind of focus on for the next quarter, couple of quarters here? Are we pretty set on that front?

Yes, I think I kind of split that in two. I think for the rest of this year, if you look at our CapEx through the first three quarters, we'll be down in the fourth quarter as we're through most of those projects. And really from the plant perspective, we've got the capacity to scale without a lot of CapEx. We'll have the typical maintenance type things going into next year. But the heavy lifting's out of the way now with the finalization of our pain line.

Yes, I'll jump in there, Chris. So W4CC and W750, we have the assembly lines fully tooled up. We're waiting just on a couple minor manufacturing devices to put on the panels on the top of the W56, minimal money that will be spent this year. W56, we just got the AGVs in this week. I'm sure we owe a last payment to them once they're run off. And we're just finalizing the paint shop run off. So we have a little bit of payment there. Other than that, we're set. 5,000 W56 a year. The W4CC, probably 800 up to 1,000 trucks a year, depending on the demand. Only money we really need for CapEx will be supplier tooling as we go into what we call the W56 cab chassis version, which will launch sometime next year. So, the capital has been spent, plants have been reconditioned, test track is in place, warehouses have been refurbished, paint shops in, everything we have is in place to be $1 billion dollar plus OEM.

That's great. And maybe just last one, you talked about being prepared to scale the business for a profitable growth 2024. Are we at a point here, you think where you have a sense as to kind of what that break-even revenue level would look like and timing around that. Just any kind of clarity you can provide at this stage would be I think helpful for folks.

Sure. Well, first of all, we're actually just kind of getting into the budgeting process so we don't really have answers there just yet. As I said, on I think a previous call, our positive gross margin is around 300 trucks a quarter, 100 trucks a month. We've not gotten into full cash flow, but you can probably do some math from there. But we think 300 is a magical number for us to get to step one here, and that's positive gross margin.

Thanks a lot. I'll hop in the queue.

Our next question is from Craig Irwin with ROTH MKM. Please proceed.

Good morning, and thanks for taking my questions. So this past year as you were planning for sort of a higher revenue runway, there was a lot of work done developing customers and supporting those customers in procurement of HVIP vouchers, some of these vouchers out of New York, New Jersey, Massachusetts. It kind of means like some of the heavy lift for growth over the next year has probably been addressed. Can you maybe talk to us how you feel about the pipeline right now as far as deliveries once production is there and these trucks are fully certified to be handed over to customers that have been working to receive them? And is there any detail that you can share with us on the vouchers or how you feel about the eligibility of vouchers as these final certifications come through?

Yes, let me -- our priorities are -- we did all the truck, the brand new truck in less than 22 months. So we're still working through stabilizing suppliers, stabilizing our own assembly processes and launching the paint plan. All right. So we have some work to do still to get towards the run rates and start picking up the pace. I'd almost say, Craig, we're priming the pump right now. That's internal, right? And we think we have that under control pretty well. When it comes to pipeline, we're seeing various feedback from the marketplace. Obviously, the CARB mandates for clean fleets takes effect January 1st, 2024 in California. And we're seeing a flurry of RFP activity out in California, primarily through government-funded organizations. So you're talking the state level, the city level, the county level of the municipalities, right? So that's an opportunity for us. That's why it was so important for us to get these HVIP credits and vouchers out in California. Okay. I'll give you -- we did two demos with fleets. One fleet is talking about buying 40 to 50 EVs, and one is talking about 30 or 40 EVs, but only if the CARB mandate stays in place on January 1st. You tell me, I don't know. There's a legal appeal against the California mandate by the California Trucking Association that should be heard in the next 30 or 60 days. My experience growing up in the auto industry for almost 50 years now, I've seen CARB loose battles, but I've never seen CARB loose the long war. Okay. So I think there's a move going forward. We've talked to some of the biggest fleet operators in California. You name it. FedEx, UPS, Rider, Penske, others, Cintas. And guess what? They're all trying to…

That's very helpful. I definitely appreciate that. So a key part of the value proposition to all of these customers is to reduce maintenance. And previously the company was saying there was about a 65% reduction in maintenance and operating costs for these trucks, for the Workhorse trucks. Your designs have evolved. I'm going to guess they probably got more efficient, more reliable. But can you maybe quantify for us what the customers are looking at as it's still roughly two-thirds reduction in maintenance and operating costs? And how does this resonate with this customer group?

Yes, that's a great question. I think we'll have better, hard, factual data at the end of this peak season here in the fourth quarter that we'll be able to share with you guys on our end of the year earnings call early next year. I can tell you right now at Stables & Stalls in a fleet of about 10 vehicles, we spend close to $30,000 a month in fuel. 70% of our trucks are now electric, and so we're not spending nearly that much on fuel. We've had zero repairs of any of our W750s for any meaningful powertrain parts. We have had some damages on the side or on the bumpers when our drivers hit things and that kind of stuff like that. So I do think the numbers are going to be somewhere north of 60% or 70% in terms of TCO savings. That's our estimate today. We'll be able to actually document it. And I want to reiterate, when we talk to these customers out, like we are in California, when we could tell them we have our own fleet of trucks and we're making the conversion from ICE to EVs, their lights light up. One fleet I was at, the average age of the truck is 15 -- they keep their trucks 15 to 20 years, the average age is around seven. We talked, we had a laugh over a cup of coffee about failed transmissions, break jobs, drive shafts, axle repairs, engines, all those kind of things like that. All that goes away with the EVs, right?

Understood. Well, congrats on the progress and thanks again for taking my questions.

Great, thanks.

We have reached the end of our question and answer session. I would like to turn the call back over to management for closing comments.

I appreciate your support. It's not easy, this transition. It's a little bit hairy sometimes. As Bob says, we're well poised from an operational standpoint. We need to go sell trucks and drones. And we got to look at opportunities to improve the length of our runway so we can land this ship successfully here at Workhorse. We appreciate it. Look forward to seeing you out in the road. Have a great day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.