This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Ladies and gentlemen, greetings and welcome to Workhorse Group's fourth quarter 2023 investor call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Workhorses Group's Vice President of Corporate Development and Communications, Stan March. Sir, you may begin.
spk04: Thank you, Donna. Good afternoon and thanks to all of you for joining us for the fourth quarter and full year 2023 results call. Before we begin, I'd like to note that we posted our results for the fourth quarter and full year that ended December 31st, 2023 via press release, as well as filed our 2023 10-K. You can find both these documents, as well as the accompanying presentation that will form the basis of today's conversation in the investor relations section of the website. We track it along with the presentation during the call. Joining me on today's call are Rick Dauk, our CEO, and Bob Ganan, our CFO. After my opening remarks on slide three, you'll see the agenda for today's call. I'll turn it over to Rick for an update on our strategic and operational priorities throughout 2023 and during the fourth quarter. Then Bob will walk us through the financial results for the fourth quarter and full year and provide our outlook for 2024. Then we'll take any questions. On slide four, you'll see our forward-looking statement. As you know, some of the comments that we've made today are forward-looking and therefore are subject to certain provisions. and as a result are subject to risks and uncertainties. You can find the full disclaimer statement in our 10-K, which was filed today, as well as in today's press release. And with that, I'll now turn the call over to Rick.
spk03: Thanks, Dan. Good afternoon, everyone. We appreciate you taking the time to call in today, and thank you for your continued support of Workhorse. Today we're going to discuss our fourth quarter and full year 2023 results and also cover the actions we're taking to position the company for success. During the year, we rolled out our first W56 step van, signed up our first W56 fleet customers, and increased our production capabilities for our W4CC and W750 vehicles. We also expanded our commercial network, adding key dealers and partners in multiple states. At the same time, we've taken actions to strengthen our financial position trucks. As we disclose today in our 10-K, We are in the process of completing negotiations on a financing transaction that, along with our pending sale-leaseback transaction and aggressive cost-cutting actions we are taking, will position our business to have the financial runway necessary to execute on our business plans. As part of the cost-saving actions, we are reducing headcount across the organization, deferring executive compensation, and suspending drone design and manufacturing in our aero business, which I will discuss in more detail later in my comments. From a manufacturing and customer service demand perspective, we have built strong capabilities. We have had initial successes last year and this year, and I've had key demonstrations with several large last mile fleet operators, as well as state and municipal fleets, which are either already underway or plan to begin in early 2024. We'll talk about all of this in detail in a moment, but I want to pause and acknowledge that I'm extremely proud of the hard work and dedication of our outstanding team here at Workhorse. Our team has overcome every obstacle placed in our path, and I know that every one of us is deeply and passionately committed to success. I'm incredibly proud of the Workhorse team and grateful for the contributions of all of our employees, including those whose jobs are impacted by the difficult but necessary actions we are taking to reduce our operating costs. Moving to slide five, let me take a few minutes to address the state of the commercial EV industry from our perspective. The workhorse leadership and sales team spent the majority of last week at the industry trade show, the NTA trade show in Indianapolis. Every OEM and the major up bidders proudly display their future zero emission class three to seven commercial vehicle product lineups. There is no question that the transition to a new generation of powertrain technology is coming. The question is really, when will it come? The new car fleet Clean Fleet mandate took effect on January 1st out in California, but it is not yet being enforced. The commercial truck industry is uncertain on how to proceed with the transition to EVs. Most fleets, both big and small, are reluctant to make large investments on the necessary infrastructure to make the shift to either natural gas or electric-powered vehicles if the CARB mandates might get delayed or revised. Several OEMs are hedging their product development investments and supplier investment plans for EVs pushing out some timing. Here at Workhorse, after two and a half years of back-breaking work, we feel that we are on the precipice of success. We can and we will find a path forward. We have the products, supplier and dealer partners, engineering capabilities, business systems, and manufacturing processes in place to emerge as a winner in the class four to six segment. But that only happens if fleet customers, both large and small, start buying our products in 2024. In 2023, we continue to advance our product roadmap, all while navigating and solving challenges, both internal and external, to the company. Progress in this nascent commercial EV industry is not linear, and we know we will need to continue to address challenges as they pop up. And while our results for the year were affected by issues that slowed us down, we never stopped driving forward to create a viable and profitable EV OEM company. During the year, we rolled out our first W56 step van, signed up our first fleet customers, and established our production capabilities for the W4CC and W750 vehicles. We also expanded our commercial dealer network, adding new dealers and upvoting partners in multiple states. In our aero business, we continue to expand our relationship with key government agencies and partners. Let's review the key accomplishments and successes we achieved at Workhorse in 2023. We will have four distinct commercial EV products in production. We have four distinct commercial EV products in production. We received important HVIP certification for both our Class IV and our Class V6 vehicles. We secured initial fleet orders for the W56 step band and strip chassis. and we organically grew the stables business. Additionally, we completed the overhaul of our Union City manufacturing complex. The workhorse ranch is now capable of building 5,000 and painting 3,000 vehicles per year on one shift. Our lean, highly flexible production facility can ramp up staffing and production in line with future market demand. At our aero business, we sold our first units We are on track for FAA certification in the first quarter this year, landed several government-funded grants, all while we continue to evaluate alternatives for the business. Moving to slide six, we have stabilized production of both the W4CC and W750 miles and handed those production over to the plant, while continuing dealer programs and field demonstrations for both of these vehicles. Notably, we successfully overcame unexpected issues with California's HVIP program and worked with the California Air Resources Board to list the W4CC and the W750 in the HVIP program in a first-of-its-kind program for intermediate vehicle manufacturers. We were able to do this by demonstrating the strength of our service, warranty and delivery network, and complete care options for customers purchasing any Workhorse badge product. With enough finished inventory in place, we have temporary paused production of these products, shifting our workforce over to focus on the ramp-up of the W56 production in the first quarter. As orders materialize, we will add the necessary hourly workforce to meet future customer demand for all of our products. Moving to slide seven, we received final HVIP certification approval for the W56 step van in Q4. the final critical milestones of delivering these vehicles to the important California market in advance of the advanced clean fleet regulation. We continue to increase our dealer network in California and have adjusted staffing and production in line with market demand over the last few months accordingly. Turning to slide eight, I wanted to share a few pictures with you of what really is being done at the Union City plant to produce our industry game-changing step van. which went from concept to production, including passing more than 250,000 miles of validation in less than 22 months. And just in case you are wondering, this is a robust, and I mean a really robust vehicle based on the comments we are hearing back from our customers on these field demonstrations. I did not know of any startup OEM that could have delivered this type of product in less than two years. Chassis units are moving down the line on a consistent basis. And by the end of 2024, there will be four variants of the W56 in production. We now have our fixtures and lift assist tools in place for both the chassis line, as well as the body line, shown in the middle of the slide. Finally, we are now painting the step vans in one of three colors. The workhorse ranch is ready to roll and fulfill future customer orders. On slide nine, we continue to have strong customer interest in the W56. This is demonstrated by the receipt of our first two 15-vehicle unit orders for the step van that we expect to deliver in 2024. As we like to say here at Workhorse, we're two for two. We also intend to introduce a longer wheelbase version of the W56 in the second half of 2024 based on the direct request of several of our fleet customers, specifically in the linen and industrial supply segments. The company has multiple product demonstrations already underway or set to begin in early 24 with several large last mile fleet operators as well as state and municipal fleets and other smaller fleet operators. Based on the demos we've had to date, we are optimistic about the prospects for the W56 as well as our W750 and W4CC products. We are able to go from order to delivery of a finished step van in five to six weeks. the shortest lead time for the class 5-6 step van market in North America, including custom up fit, paint, and branding. We have received extremely positive driver and fleet manager feedback reflecting the vehicle's strong performance in the field as recently as last week at the NTA show and from one of the largest package delivery companies in the country. According to customers, the W5-6 is a superior truck with innovative technology. Turning to slide 10, we continue to build out our commercial dealer and service capabilities to capitalize on our product roadmap. I'm particularly excited by the significant expansion of our dealer network using our strict selection criteria. We continue to expand our dealer network with a focus on those regions where carb clean cleat and clean truck mandates will be adopted in 24 through 2027. We successfully added new certified dealers, bringing our network to 11 dealers nationwide with a 12th pending and soon to be announced. As we continue to actively expand, we have a target number of 15 to 20 deals by the end of 2024. In addition, we have added 21 upfitting partners in the past nine months. As we recently shared, we also established partnerships with WW Williams and Zine Solutions to expand service and support options for customers in the field. On slide 11, within our stables operations, we continue to electrify our delivery fleet, which is operating multiple delivery routes here in the Cincinnati area for FedEx ground, organically gaining new route assignments due to our superior performance. We now have seven class IV EV units in the delivery fleet and expect the whole fleet to be electrified in 2024. We executed peak season extremely well with Q4 of 23 revenue up more than 90% compared to Q4 of 22 including the benefit of organically adding 20% of our assigned routes at the request of FedEx. The lessons we are learning at Stables are invaluable and give us tremendous credibility to fleets, not only FedEx, but all the fleets we meet with. Moving to our aero business on slide 12, we achieved important progress in the last year on drone deployment and delivery to customers. First, we launched production, sold and delivered our first units of the horse fly unmanned aerial vehicle or UAV. Nevertheless, during the first quarter of 24, we have decided to suspend drone design and manufacturing and exclusively focus on a less capital intensive drones as a service model and further develop our DAS products and services in this area where we see near term profitable growth opportunities continue to expand. Driving this decision was Arrow's continued ability to win additional grant awards from the USDA to support National Resources Conservation Service. What we do for the USDA, flying drones equipped with sensors and delivering actionable data is what our drones as a service model is all about. This service has continued to grow over the last two years since we first pioneered this capability with the USDA. In January, Workhorse received an additional $500,000 grant and in February received a separate $350,000 grant to provide actionable data from sensor scanning to increase the efficiency of underserved farmers and ranchers' land use. We are in advanced discussions with additional government agencies on future scanning and service opportunities at a significant potential grant or contract level. More broadly, our strategic view for the Arrow business remains underway to ensure we are unlocking the most value for workhorse shareholders while also best positioning our Arrow business to capture and fund future growth opportunities as they see them. With that, I'll turn it over to Bob to discuss our financial results.
spk02: Thanks, Rick. Let's turn to slide 13. We'll cover our full year results. For the year, sales increased $8.1 million to $13.1 million for the full year 2023 compared to $5 million in 2022, primarily resulting from the increase in W4CC sales and volumes. The W750, W56 products, which launched in the second of 2023, as well as stables by Workhorse and our drone as a service offering also contribute to the increase in revenue. Cost of sales for the full year 2023 increased $0.7 million to $38.4 million compared to $37.7 million in 2022. The increase was primarily due to increased production and overhead costs to support higher sales volumes related to the new vehicle platforms and an increase in employee compensation related expenses compared to 2022 levels. This increase was partially offset by a decrease in inventory reserves, adjustments, and disposals, which were driven by the disposition of C-series inventory in 2022. SG&A expenses for the full year of 2023 were $55.6 million, a decrease of $17.6 million compared to $73.2 million in 2022. The decrease was driven by a $25.2 million reduction in legal expenses and expenses attributable to the securities and derivative litigation settlements recognized in the prior year. This decrease was partially offset by a $3 million increase in employee compensation and related expenses, including non-cash stock-based compensation expenses. $2.1 million increase in professional and other services expense, and $0.6 million increase in corporate insurance expenses. R&D expenses for the full year 2023 were $24.5 million, an increase of $1.3 million compared to $23.2 million in 2022. The increase was primarily driven by an increase of $1.4 million in employee compensation-related expenses and a $0.8 million increase in development expenses for new products. These increases were partially offset by $1.4 million decrease in consultant expense. Other loss for the full year of 2023 was $10 million, compared to $13.6 million income in 2022. Other loss in 2023 represented the impairment of our investment tropos. Other income in 2022 represented proceeds from the sale of C-Series inventory that was previously fully reserved. That interest expense in the current year was driven by a fair value adjustment of our convertible notes and warrants of $8.3 million and $2.1 million fees applied in connection with the securities purchase agreement and the equity line of credit purchase agreement, all set by interest earned on cash balances in our money market investment accounts. That interest expense in the prior year was primarily related to $1.4 million of fair value adjustments, $0.3 million of contractual interest expense, and $0.4 million of loss on conversion of former convertible notes. which were exchanged for common shares during 2022. When the years ended December 31st, 2023 and 2022, we incurred taxable losses and thus no provisions for income tax benefits have been recorded. Net loss for the full year 2023 was 124.6 million compared to a net loss of 117.3 million in 2022. Loss from operations for the full year 2023 was 105.3 million compared to $129 million in 2022. Turning to slide 14, discuss our balance sheet. As of December 31st, 2023, we had inventory of 40, net inventory of $45 million, as well as $35.8 million in cash, which includes $10 million in restricted cash. We are operating officially and selectively resizing our team here at Workhorse while maintaining the necessary resources and skills on the team to continue to design, test, and build world-class commercial trucks. Importantly, we are taking major strengths to strengthen our financial position. We entered into a sale-leaseback agreement for Union City Manufacturing Complex in January. The agreement we entered strengthens Workforce's financial position and reflects the investments and work our team has put into refurbishing the plant and turning it into a first-class manufacturing facility. Workforce continues to support the activities of the purchaser and closing as expected in May of 2024. Turning to slide 15 in our 2024 overview, Given the number of key customer demonstrations underway in Q1 and Q2, we intend to report on progress when it occurs. As a result, we will not be providing specific annual revenue or unit guidance at this time. Workforce is entering 2024 with a strong production and delivery capabilities as well as a keen focus on financial discipline and cost control. As we speak, we are working hard to resolve our short-term liquidity issues described in our 10-K. Over the year, we will maintain our focus on operational excellence and cost reduction as we increase production and expand delivery of our commercial vehicles to meet our financial targets for 2024. At the same time, we will continue to evaluate opportunities to strengthen our financial position. With that, I'll turn it back to Rick now to conclude.
spk03: Thanks, Bob. To wrap up the call, I want to discuss our key near-term priorities, which are on slide 16. Our focus is on strengthening our financial position while we continue advancing our product roadmaps and ramp up production as we secure orders for our commercial EVs. In plain and simple terms, we want to make sure we have the financial runway to build and sell trucks and provide drone services to our customers. Achieving our goal of pioneering the transition to zero-emission commercial vehicles is no easy feat, and it's definitely not for the faint of heart. We believe we can. We believe we will emerge as a segment winner in this once-in-a-generation powertrain technology transition. The pace of the transition to EVs is unpredictable, and we cannot predict the speed at which the transition will occur. What we can control is to ensure we are 100% ready to meet the needs of our customers. We are prepared for the transition from every touchpoint in the delivery process. We have the people, products, processes, supplier, and commercial business partners to meet the needs of the market when this EV transition hits its stride. We need our customers to start ramping up their own transition to EV-powered vehicles and believe that two or three of the largest fleets here in North America are ready to do so, hopefully soon. Our team's perseverance in the face of market and regulatory challenges is commendable and we remain determined and optimistic. The groundwork is done and the foundations are in place for us to be the class four six segment leader in the commercial EV segment. We expect to emerge a winner in the space and we look forward to continue to do the work to get ourselves there. Now we'll open the call for questions. Donna, I'll turn it back over to you.
spk01: Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to register a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow up. Again, that is star 1 to register a question at this time. Today's first question is coming from Sharif El-Moghrabi of BTIG. Please go ahead.
spk00: Sharif El- Hey, everyone. Thanks for taking my questions. So first, I want to start with how do you prioritize orders between the W56, 750, and the W4CC this year? How are you managing that capacity?
spk03: We have two separate lines. We actually have three separate lines. We have a dedicated chassis line for the W56, which has a corresponding cab and box line. So that's a separate line, and we can do about 5,000 vehicles a year there. We talk to our suppliers, and they can ramp up to that level as well. We then have two separate lines. We have the W4CC line, which we were building in about four a week. No, four a day, sorry, before we put it on pause. And that leads into a separate W-750 line, which we can build one or two a day there. Okay? So if you were at our plant, you'd see very distinct assembly lines. And it still leaves about a third of the plant open for future products if we want to do something there.
spk00: That's helpful. Thank you. And then on the CARB mandate, can you tell us what you're hearing regarding its enforcement or revision?
spk03: That's like the million-dollar question. You know, we've heard both sides of the equation in terms of the California Trucking Association taking exception with CARB, and CARB saying that they're very firm and they're going to put it in place this year. We just don't know the timing. I'd be guessing if I try to guess right now. So we hope sooner rather than later. And we've talked to many fleets, and many fleets in California, they have a very good handle on how many trucks they have in the state. They know what they have to do to meet the CAR mandate by the end of the year. And that gets kicked in. It's a significant demand. And we're not sure there's a whole lot of people left to fill that demand. We want to be one of them.
spk00: All right. That's helpful. Thanks for taking my questions. You're welcome.
spk01: Once again, ladies and gentlemen, that is star one to register a question at this time. We'll pause for additional questions. Once again, that is star 1 if you would like to register a question. At this time, I would like to turn it back over to Mr. Douck for closing comments.
spk03: Well, it must be lunchtime on the East Coast, and we appreciate it. Hopefully, if you have any questions, reach out to Stan, and we'll do that. And hopefully, we'll be able to report some good news on our demos and turn into orders. We'll get our plant working and staying busy. Thanks a lot for your interest and workhorse. Thanks. Bye.
spk01: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Disclaimer