Hello, and welcome to the Workhorse Group Q1 2024 Earnings Conference Call. [Operator Instructions] 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, Stan.

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 we posted our results for the first quarter ended March 31, 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. 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 3 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 actions and results of the first quarter. Rick will then wrap up with our near-term objectives before we open the call to questions. On Slide 4, 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 in Q filed on May 20 as well as the earnings press release also published that day. Now I'll turn the call over to Rick Dauch. Rick?

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 road map, executing our strategic plans and strengthen our financial position. These efforts are enabling Workhorse to remain a segment leader in the transition to commercial EVs, specifically in the last mile delivery step van and work truck spaces. Turning to Slide 5. Let's talk about our achievements. We have received substantial orders for both our W56 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. Second, we are expanding our commercial network by adding new dealers, including 2 locations in New York City, a critical location for EV adoption and [indiscernible] in the near future. We've also added 2 locations in the Upper Midwest and Northwest regions, 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 aero business. 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 [indiscernible] that equipment. 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…

Thanks, Rick. Let's turn to Slide 9 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 road map and business plan in 2024 and 2025. And to date, we have received gross proceeds from this agreement of approximately $15 million before fees, expenses and original issue discount. On the cost side, we completed implementation of a reduction in force of approximately 20% of the total workforce, excluding direct labor. We also moved to a Drones as a Service model in aero. We temporarily furloughed Union City plant workers while we wait for larger backlog of truck orders. However, limited recall of the staff has already begun. 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 W4 CC 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 Stables by Workhorse route, Drones as a Service, and other service revenue. 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 was primarily due to a $2.2 million…

Thanks, Bob. Let me briefly discuss our near-term priorities, which I outlined on Slide 12. Our key strategic priority is advancing our product road map, specifically securing new orders and delivering products to more customers. We 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. We appreciate the continued support of our supplier partners who await the acceleration of our product -- production plans. 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 definitely starting to take hold. We fully intend to emerge as a winner in the Class 46 step van and work truck segments of the market. 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 road map and capture the significant opportunities ahead as the transition to EV technology curves across the commercial segments. Workhorse is ready to win when the market emerges. Now we'll open up the call for questions. Operator, I'll turn it back over to you.

[Operator Instructions] Our first question today is coming from Mike Shlisky from D.A. Davidson.

I want to start off maybe asking about Stables installed here. At this point, you've got DHL out there running EV vans for a couple years now in different sizes, other FedEx within other states also running EVs, step vans for a couple of years now, maybe not a Workhorse brand, but other brands of EVs. I guess, it seems like it's a 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. Then, 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.

Yes, Mike, we've had those internal discussions. We've only got the W56s onto the Stables earlier this year. We really wanted to get at least minimally 6 months on that, but you're probably right. It's not our intention to be a long-term owner of the Stables operation. 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 3- or 4-hour presentation to one of the last large mile fleets, we were able to stand up as a FedEx ground operator with over 1.5 years of experience now, what it cost the transition from ICE to EV in terms of charging systems, infrastructure tie-ins, what it means to get rid of some of the old trucks and move to the EV trucks. And now we have the documented proof that there is a savings. And I won't go into the total [ sense ] per mile, but it's significant and we shared that, and that's got a lot of attention, and we're working hard with at least 2 of the last mile fleets based on that data to help them start their transition over EVs, okay? And as you know, if you go back and look at the history, there's been some starts and some stops as other companies have tried to bring EVs to market. Trucks have failed, 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 in the W750 and over 4 or 5, 6 months now on the W56 on our own routes with almost 0 flaws. And I think that sends a lot of message about our trucks. As one customer said, you're the only customer that we have -- or supplier we have right now who actually used to run their trucks for more than 6 or 12 months, okay? So you're right. Longer term, I think Stables probably gets monetized at some point.

Sure. I appreciate that, Rick. Maybe turning to some of your more recent [indiscernible] 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?

Great question. Almost every one of the W4 CC is tied to some kind of California HVIP incentive for sure. On the W56s, there'll be some that are not tied to incentives at all. They're going to larger fleets and then there are some that are tied to the HVIP credits that are required in California. We know that we have 1 order for a new rental fleet basically in California that was subject to 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. So now we can ship the trucks and get them up-fitted.

Great. Fantastic. Maybe one last one for me. I saw another -- I saw a Workhorse script chassis. It must have been a W4 CC, it had a dump body on 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.

Sure. All 141 of the W4 CCs that are going to Kingsburg are basically for not last mile delivery either for electric trucks. We talked to Jerry, the dealer principal out there. Majority of those trucks are going to be used in California in either 3 forms of fashions, a state truck, a dump truck or a utility-type truck, right? Mostly around -- his dealership is in the covers of San Fernando Valley, a lot of interest there in some of the small agricultural programs and also some of the local distributors out there. So most of the W4 CCs not for last mile delivery.

Next question today is coming from Jeff Osborne from TD Cowen.

Two questions on my side. I was wondering just as opposed to changes in April and May, if you could just discuss what the burn rate is at these levels.

I'll let Bob take that one.

Yes. So I think in the first quarter, once you factor out all of the finding the fee-type things, our burn rate was about $5.5 million. However, as we announced earlier, most of the reductions didn't really start until March. So we expect that to be sub-$5 million here in the second quarter.

And then was there any changes in April or May to lower that beyond that $0.5 million savings there?

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. So I think that 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 we'll be in that $4.5 million to under $5 million range.

We need to move to finish good trucks with the orders we have to generate some cash and we go back and buy parts and we can build more trucks, so pretty clear.

Rick, that leads 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 like what is 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?

Yes. I'll let Bob cover the financial numbers on the inventory, and then I'll come back and take the production ramp back up.

Yes. The finished goods inventory is about $20 million. And I would say for the next round of trucks, probably 3/4 of the inventories in raw materials. So it won't take much to finish off another 20 to 30 trucks.

We have batteries on site right now, I think, for 214 sets of W56 trucks. We have some W4 CC prebuilt chassis available still go through us. So as we start shipping those trucks to Kingsburg, we can finish those W4 CCs. There's another 40 edit supplier that are waiting to come to us, we don't want them right now. So ramping up, we were only building about 1 chassis a day. That's probably where we're going to 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 into the year to like 4 or 5 a day. But right now, we're at 1, 1.5.

So you could get to 4 or 5 with the staff that's on hand today then, Rick?

We 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 in the plant who can do some of the launch issues we have in the paint shop -- not the paint specifically, but it's the pre and post paint 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. The good news is, I want to say this publicly, right? Our workforce is the best, right? They understand how tough this transition is to EV. Many of them have been in that plant for years or decades. They understand what happens when a plant is idle for a while, not just for 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 the EV adoption. That's by the customers and there's a lot of factors that are impacting that right now. 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, so they understand and 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 W4 CCs. And you're starting to see the big guys realize they have to make the transition, they are making a transition, but it costs money. I was with one large fleet at ACT for about 1.5 hours, they've laid out depot-by-depot how they're going to electrify across the I-5 corridor over the next 3 years in California up to Washington. 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 in the 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.

Your next question is coming from Craig Irwin from ROTH Capital Partners.

So Rick, at ACT Expo, the big conversation with all the EV truck guys was the impact on the battery tariffs, right? A lot of people planning for changes, either changed vendors or different cost structure. Can you maybe update us on what you see for Workhorse from the implementation of the battery tariff? What do you think a probable outcome is for you? And do you see this as something that is going to have a minor impact on business or potentially something that could help you in the longer run?

Short term is minor, like I told you, we have 214 sets of the CATL 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 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, there just is not the installed capacity that we know of. 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 '23 launch of W56, and we couldn't find one. So we stuck with CATL and 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 work right now, that's all, I'll say, is what our long-term impacts. 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 at the end of the day, the tariffs will have an impact. We've already talked to our friends at GreenPower 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.

Great. And then if I could ask for just a little bit more color. So some of the guys out there that are using CATL were saying that there are anticipated changes as far as the way CATL will serve the market here in North America, particularly the trucking market. Do you believe that there is a credible path to sufficient [indiscernible] content on the pack or a similar pack to what you've been having from the same vendor? Or you would be looking just at global sources?

I won't comment on CATL specific plans to either localize here in North America, but I'll tell you that we've had discussions with both CATL 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 plant. We know there's a couple of new plants. There's is one at BorgWarner under Akasol, 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 CATL as long as they continue to execute it for us, and they're doing a great job for us.

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.

No, I appreciate that. I appreciate the questions. I appreciate the patience of our -- 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 win, and we're going to find a way to do so. Thanks, and have a great Memorial Day weekend.

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.