Workhorse Group faces EV adoption challenges, remains hopeful By Investing.com

Workhorse Group Inc. (NASDAQ: NASDAQ:), a company specializing in electric vehicles (EVs), reported its Q2 2024 financial results during an earnings call, highlighting both progress and challenges in the EV market. Despite slower EV adoption rates and delays in funding incentives, the company remains optimistic about the long-term EV market potential. Workhorse achieved strategic collaborations and took actions to reduce expenses and conserve cash. The company reported Q2 sales of $800,000, primarily from lower W4 CC vehicle sales, with a cash balance of $5.3 million as of June 30, 2024.

Key Takeaways

• Workhorse Group reported progress on their EV product roadmap amid slower adoption rates.
• Strategic collaborations and cost-reduction measures were implemented.
• The company remains optimistic about the long-term EV market, focusing on commercial fleet demand.
• Q2 sales were reported at $800,000, with a cash balance of $5.3 million.
• Workhorse is working with last mile fleet operators and awaits the recognition of $2.2 million in deferred revenue.

Company Outlook

• Workhorse is confident in capturing future EV demand, focusing on commercial fleets.
• The company plans to introduce a 200-inch wheelbase version of the W56 model.
• Expansion of dealer and service networks, especially in incentive-offering states like California, is ongoing.
• Near-term priorities include securing new orders, delivering products, and advancing the product portfolio roadmap.

Bearish Highlights

• EV adoption rates are slower than anticipated due to various industry challenges.
• Delays in funding incentives and voucher approval processes have impacted revenue recognition.
• California’s adoption rate for EVs is below the 2025 target, with less than 2% of new truck registrations receiving HVIP vouchers.

Bullish Highlights

• Positive feedback on Workhorse’s W56 model and interest from major last mile fleet operators.
• The company’s own data supports the financial business case for transitioning to EV trucks.
• Partnerships and deliveries, such as those with McAbee Trucking and NorCal Transports, demonstrate market traction.

Misses

• Sales for Q2 were primarily due to lower W4 CC vehicle sales.
• The company was unable to deliver the first 30 trucks of a purchase order due to CARB HVIP voucher delays.
• Limited shipments are expected in the first part of 2025 if no new contracts are signed soon.

Q&A Highlights

• CEO Rick Dauch discussed the importance of surviving in the short term while seeking long-term growth.
• Workhorse is exploring options for a lower range vehicle and a complementary Class 5-6 product.
• The company has put a new project on hold to preserve cash, indicating a cautious approach to spending.

Workhorse Group Inc. continues to navigate the complex landscape of the EV market, facing both significant challenges and potential opportunities. The company’s strategic collaborations and cost-reduction efforts, along with its focus on the commercial fleet sector, suggest a proactive approach to overcoming current obstacles. As Workhorse looks to the future, the EV market’s growth trajectory and the company’s ability to secure new orders and revenue will be critical to its success.

InvestingPro Insights

Workhorse Group Inc. (NASDAQ: WKHS) has shown a notable revenue growth of 90.1% over the last twelve months as of Q1 2024, indicating a potential upswing in sales despite the current challenges in the EV market. This growth comes even as the company experiences a decrease in quarterly revenue by 20.91% in Q1 2024, reflecting the volatility and competitive nature of the EV sector.

InvestingPro Tips highlight that analysts expect sales growth in the current year for Workhorse, which aligns with the company’s optimistic outlook on the long-term EV market potential. Additionally, two analysts have revised their earnings upwards for the upcoming period, suggesting a positive shift in market expectations. It’s important to note, however, that Workhorse is trading at a low Price / Book multiple of 0.34, which could signal undervaluation relative to its assets. This financial metric is particularly relevant for investors considering the company’s current market capitalization of $18.2 million.

Despite these positive sales growth figures, Workhorse has faced significant price declines, with the stock price taking a considerable hit over the last week, month, three months, six months, and year. The stock has fallen significantly, with a 1-year price total return of -93.89%, showcasing the high price volatility that the company trades with. This may be of interest to investors looking for potential entry points or those assessing the risk profile of Workhorse’s stock.

For those seeking further insights, there are 18 additional InvestingPro Tips available, which delve deeper into Workhorse’s financial health, stock performance, and market positioning. These tips can be found at https://www.investing.com/pro/WKHS and may provide valuable guidance for investors considering Workhorse as part of their investment portfolio.

Full transcript – Workhorse Group Inc (WKHS) Q2 2024:

Operator: Greetings, and welcome to the Workhorse Group Q2 2024 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. (Operator Instructions) A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Stan March, Vice President, Corporate Development and Communications. Please go ahead, Stan.

Stan March: Thank you, Kevin. I’d like to welcome all of you to our second quarter 2024 results call. Before we begin, I’d like to note that, we have issued our results for the second quarter ended June 30, 2024 via press release and we filed our 10-Q last evening for that period. You can find the release and accompanying presentation on the Investor Relations section of our website. We’ll be tracking along with the presentation during this call. Also joining on today’s call are Rick Dauch, our CEO; and Bob Ginnan, our CFO. For today’s agenda, please turn to Slide 3. Following my opening remarks, I’ll hand the call over to Rick, who’ll give you an update on the success we’ve made on our strategic, operational and financial actions during the quarter. Bob will then walk us through our financial results for the quarter. Rick will then wrap it up, before we open the call to questions. Our disclaimer can be found on Slide 4. Some of the comments we made today are forward-looking and are subject to certain provisions and also subject to risks and uncertainties as well. You can read the full disclaimer statement in our periodic filing on file with the SEC, including the 10-Q that we just filed as well as today’s earnings release. And now with that, I’d like to turn the call over to Rick Dauch. Rick?

Rick Dauch: Thanks, Stan, and good morning, everyone. Thank you for taking the time to join us today. During the second quarter, we made important progress on our EV product roadmap. While the work we did was significant, our financial results for the quarter reflect that there still remains a lot of work ahead of us to achieve our goals for 2024 and beyond. Some under our control and some outside of our control. We operate in a nascent and challenging EV market. The first half of 2024 saw slower than anticipated industry wide electric vehicle adoption rates, driven by the lack of government policy enforcement and delays in funding incentives available to our California dealers. Other macro factors affecting the industry include slower rollouts of electric vehicle charging systems and infrastructure nationwide and government red tape in various states to get approvals for electric vehicles in order for them to reach the end customers. The pending Presidential election with two far different views and investments in the green economy is influencing fleet owner decisions on whether to move forward on investments in EV technology, both in terms of charging system installation and EV truck purchases may go hand in hand. Nevertheless, based on our discussion with multiple fleets, we are starting to see some early positive signs and we remain encouraged by the long-term opportunity in the Class 4 to 6 work truck segment on the transition to EV vehicles. We’re optimistic that demand going into 2025 and beyond will begin to materialize and grow, driven by increasing federal and state emission requirements and mandates, HVIP certification of our W56 and new state level government centers and subsidies that encourage EV adoption long-term. I believe we are doing everything we can to position Workhorse to capture future commercial fleet demand. Most importantly, we have and are continuing to develop reliable, capable products and have a world class manufacturing plant with adequate capacity in which to build them. The W56 is proving to be everything we expected and everything our customers specified. The traction we are getting with customers is real. Customer feedback after multi-week demos has been extremely positive and we’re starting to see initial orders come in. Based on this direct customer feedback after the demos, we have also kicked off the design of two new variants of the W56, which will be through testing and into early production by year end or in early 2025. More on that in a moment. At the same time, we have taken critical and at times extremely difficult and painful actions to reduce expenses to extend our financial runway. We divested the aerospace business, reduced headcount across the organization, furloughed workers and delayed a future product program by 12 months to 18 months in order to conserve cash. Taking it all together, we are confident in the long-term market opportunity of the EV transition and need to fight our way through the next 6 months to 12 months to emerge as a viable and successful EV OEM. We believe in Workhorse and our ability to win in the market with our high quality people, trucks, business partners and service capabilities, which differentiate us from the other EV OEMs in the Class 4-6 segment commercial segment. I’ll now dive into the actions we took in the quarter. Turning to Slide 5 to discuss the key achievements in the quarter. On the sales front, in June, we entered a strategic collaboration with our certified dealer KTS in Kingsburg, California with the commitment to supply 141 W4CC cab chassis units in 2024 and 2025. KTS is starting to see real demand across both small private and government-funded fleets ahead of the enforcement of the CARB ACF mandate. We are hearing that some government-funded fleets are only allowed to buy EV trucks going forward in California, starting late this year. Workforce received payment for the first 30 trucks from KTS in the second quarter. However, due to delays in the CARB HVIP voucher approval, audit and payment process, KTS was unable to deliver the trucks to end customers, limiting the revenue recognized by the company in the second quarter. The positive news is we have started to see some progress in this area, early in third quarter. We also reached a major milestone with the award of a source well contract for the procurement in the category of Class 4 to 8 chassis and cabs with related equipment, accessories and services. This significant achievement allows workforce to expand our commercial reach to government, education and non-profit sectors in all 50 states and in Canada and we’re starting to see interest through that Sourcewell contract. To support our roadmap, increase our footprint coverage in the United States, we continue to expand our commercial presence, adding three new dealer partnerships in early EV adoption regions of the country specifically the Northwest region and the Northeast corridor. As we continue to execute on our product roadmap and business plans, we also recognize the need for continued thoughtful decisions to conserve cash and reduce costs across the organization. With limited sales and revenue in the near-term, we need to dramatically reduce our cash burn rate and conserve cash to extend our financial runway until EV adoption rates pick up in the future and we took those decisive actions. Last quarter, we told you that, we made the difficult decisions to reduce our workforce and furlough a number of our Union City employees. Our team is the key to our near- and long-term success. As we ramp up production alignment with customer orders and industry trends in the second half, our goal is to return our full team to work as soon as possible. Additionally, as part of our disciplined approach to cost management and focus on extending our financial runway, we completed the previously disclosed divestiture of the Aero business to an affiliate of ATW Partners on June 6, 2024. The Aero divestiture provides the company with monthly cost savings and approximately $400,000 of monthly savings, enhances the company’s ability to concentrate all of our time and resources in our commercial electric vehicle truck business. As part of our earn-out provisions in the sale agreement, Workhorse will receive a portion of future Aero business proceeds on revenues from contingent sources. Moving to Slide 6, I want to spend just a moment framing the overall EV industry backdrop, specifically in the commercial work truck and step van segment. At times here at Workhorse, we get painted with a general EV automotive or Class 7 heavy truck brush, which is not truly applicable to the segment where we compete, where there is a compelling business case for fleets to make the transition to EV technology. The global move to reduce carbon emissions was crystallized in the Paris Accord back in 2016. China and the European based auto and truck OEMs have moved decisively to meet strict government mandates in those regions of the world. I experienced this personally, while I was the CEO of Delphi Technologies living in London from 2019 to 2020. The growth in EV demand in China and parts of Europe was robust and far outpaced the forecasted growth of EV powered Vehicles here in North America. Here in the United States, our government position on the Paris Accord has changed at least 3x at the national level. But a number of states led by California have been developing policies to address the Class 4A truck sector through Clean Truck and Advanced Clean Fleet or ACF mandates, which were codified in 2023 with important fleet EV milestones in ‘24 and ‘25 through 2035. Currently, there are three legal actions underway seeking a redress or challenge or delay in the implementation of these California mandates designated by CARB. In addition to California, 17 other states have announced the adoption of the CARB mandates between 2024 and 2030. And to put this into perspective, when fully enacted the number of Class 4-6 trucks requiring replacement between 2024 and 2035 is more than 350,000 units. This is a target rich environment and we are prepared with the right vehicles and the internal production and supply capacity to secure a significant share of that demand, if and when it materializes. While compelling use case and financial returns exist and lofty emission reduction goals have been made by major last mile fleet operators across the country, this pending demand has yet to translate into meaningful vehicle orders in the Class 4 through 6 EV medium duty truck segment. Let’s move to Slide 7 and talk about the corporate ESG commitments. Following the Paris Accord announcement, major corporations across the globe that operate and compete in the last mile delivery space began publicly stating and promoting their own comprehensive ESG policies. I want to share with you some of the stated policies of some of the largest last mile fleet operators, our core targeted customers. These policy positions are found on their respective websites. As you can see, many are targeting net zero carbon emission a full decade earlier than the Paris Accord to acquire. 2040 is only 16 years away, which means these fleets must start making the transition soon, if they are to really accomplish the stated objectives on CHG emission reduction. We have spoken and met with every one of these companies on this short list and have conducted successful product demonstration with several of them. There is a wide range in operational and capital planning and investment decision making underway amongst these fleets. Some fleets like Amazon (NASDAQ:) and DHL are focused on using smaller Class 3 step vans. That’s not where we play. Most of the others though have fleets that are heavily populated with what we call the P1000 version of step van and that is exactly where we play with the W56, the Class 5-6 step vans segment. Many new suites dating back to 2017-18 have had mixed results with early adoption of EV powered vehicles to include range issues, especially in severe weather conditions, payload capacity issues, system durability issues, spare parts availability, service delays and in some extreme cases thermal events on early versions of EV trucks. We have heard and in some cases, we have witnessed their stories at fleet customers. The result is that many industry players are moving slowly and cautiously into the zero emission technology transition. This generational technology transition will not happen overnight, as many industry pundits predicted and forecasted back in 2018 and 2021. It is costly and there are many hurdles that will still need to be overcome. Specifically, affordability, which is mostly driven by battery cost, which most battery components are coming from offshore and the installation of adequate EV charging infrastructure. For the larger fleets, we are talking about multi billions of CapEx investments over multiple sites over a period of up to a decade or more. We are working closely with two to three of these fleets as a potential primary vehicle supplier going forward. We stand ready to meet their needs whenever they decide to undertake the investments necessary to start their transition to EV-powered commercial vehicles. Moving to Slide 8. I want to spend a moment to provide you a snapshot of the voucher dynamics in the most important states in the country for EV adoption, California. You have heard me say in the past that the CARB HVIP program and enforcement of the Clean Fleet mandate standards are critical to the near-term success and viability of the nascent EV commercial truck industry. As you can see, current carbon initiatives are not achieving planned goals. Less than 2% of Class 4 to 6 new truck registrations have received HVIP vouchers over the last two years, well below the 9% EV targeted for the fleet operators in 2025. Currently, CARB has not yet leveled penalties on fleets for felling to meet ACV — ACF mandates. Until the legal challenges of the CARB mandates are resolved and finally start being level for fleet failing to meet mandates, many fleets are simply taking a wait-and-see attitude towards investing in charging stations at EV trucks. Our focus has been on identifying those fleets that are not waiting and have approved and have approved investment plans to move forward in 2024 and ’25 to include Mission Linen, Vestas and one of the largest global last mile fleets in the world. All four of these companies have successfully demonstrated capable of the W56 on their actual routes in California and other states. And two of these companies have already placed orders for us, and we are working hard to secure in order from the third fleet. I want to spend a moment on Slide 9 to talk about our own Stables by Workhorse program. As we are one of only a handful of third-party contractors across the country that has actually successfully executed an ICE to EV fleet transition in the past two, three years on our own nickel. I’d like to share with you some of the key data we are able to share with fleet customers based on our real-world results at executing our own fleet electrification efforts. Our goal was to operate our fleet of EVs alongside our ICE fleet and compare the total cost of ownership, TCO, with the ACT Research ICE to EV model. The real-world results we achieved on our own FedEx (NYSE:) routes here in Ohio, confirmed the ACT miles prediction, with a payback of period of less than five years without any state level of tenants or grants. And in fact, we found actual TCO of 1.7x the model projection when dealing with the oldest, meaning age, maintenance intense trucks, which reflected a large percentage of the step vans on the road at the largest fleet in North America today. The bottom line is that there is a financial business case to be made by transition to EV trucks in the commercial work truck segment even without incentives. On the lower left side of the slide, we summarized the real-world results ranges from our Stables operations. And this data tracks what we are seeing in our demo truck deployments for last-mile fleet operators at multiple customers. The savings are real, and we use this data during our discussion with the aforementioned fleets and targeted customers. Our own experience here in Ohio is stable and during four to six customer demos across the country in California, Tennessee, Ohio, Connecticut and Massachusetts validate these facts. We often only charge our trucks every other day or every third day, except during extreme hot or cold weather situations. In one demo on a route that averaged less than 25 miles to 30 miles per day in a city environment, the W56 only needed to be charged one-time per week. So our trucks performing very well out in the field. Moving to Slide 10 and turning to our commercial vehicle programs. We continue to gain traction and positive feedback from customers, mostly for small initial purchase orders. In the ongoing commercial discussions with larger fleets on future truck orders tied to their investments and installation of adequate EV charger systems infrastructure with lead times of 3 months to 12 months. In addition to the KTS purchase order, we also progressed across a number of new commercial partnerships, including delivery of a W4 CC Box truck to McAbee trucking following a successful field demonstration. This electric vehicle is set to perform a 120 mile daily round trip mail route between Blacksburg, South Carolina and Shelby, North Carolina in support of the U.S. Postal Service. This is our first win with a third-party contractor for U.S. Postal Service. We also announced a delivery of a W56 step van as part of an ongoing collaboration with NorCal Transports in Richmond, California, just outside of San Francisco. NorCal is a West Coast innovator in last mile package delivery contractor, which will serve as another example of real-world EV performance. It will allow us also to go head to head with at least two of our key competitors in this segment and we are confident that W56 step van will prove to be a more capable truck based on early feedback from other fleets in California who have successfully tested our truck. We also entered an upfit program with Surefitters, which offers a ship-through solution to commercial EV customers. The partnership launched with 13 pre-configured upfit packages available to Workhorse dealers, specialized for last-mile delivery and vocational trucks for W56 and W750 step van. Additionally, full body packages from a tough light CM Truck Beds and Rugby are included the W4 CC cab chassis with additional upfit packages to be added throughout the remainder of 2024 and beyond. Turning to Slide 11, Building on the success of the W56, we will introduce a 200-inch wheel-based version and have already secured orders from a customer who was impressed by the technical superiority of the W56 platform, but required a larger cargo capacity to meet their specific daily needs. Our own experience at Stables also validates the need for the longer wheelbase capable of handling a larger cubic volume. Our W56 units operating Stables often cube out before they load out. The extended wheel-based version of W56 will accommodate Workhorse’s next-generation step van body. It will span 22 feet with an impressive cargo volume of 1,200 cubic feet. At durability testing will be completed in Q3 and initial production the first deliveries of this product were expected in Q4. I also want to emphasize, based on conversations with other fleets, that they are indicating that the product mix could be up to 25% or greater for the 1,200 cubic feet step van, which will be built across the same assembly line and paint system that we currently use for the 178-inch wheelbase 1,000 cubic feet version of the W56. We continue to expand on Slide 12, the dealer and service network and geographies in which customers can purchase Workhorse vehicles, and they are working to ensure that our customers can take advantage of available incentives, which vary by state and in some cases, cities or economic zones within a state. California is a key market as the W56, W750 and W4C, since all qualified or incentives offered by HVIP and (ISIP) programs. Through HVIP vehicle purchase and participating dealers are eligible to apply for a base voucher of $85,000 per W56 purchase. If the vehicle is based in (ISIP) zone, fleet owners can get additional incentive vouchers. In some cases, the fleet owners can get enough incentive money to generate a payback of less than three to six months on an EV truck investment. And we continue to add dealers, including the Ziegler Truck Group in Minnesota, Iowa and Wisconsin, Melia in New York City and Echo Auto in North Boston. With that, let me turn the call over to Bob to discuss our financial results and the recent steps we have taken to strengthen our financial position.

Bob Ginnan: Thanks, Rick. Let’s turn to Slide 13. During the quarter, we enacted additional proactive measures to conserve cash and reduce costs across the organization. We continue to operate at reduced headcount, a net reduction of approximately 50% of our staff through a combination of reductions, attrition and in the Aero divestiture, along with the decision to furlough 73 employees at the Union City manufacturing facility. I am pleased we have brought back 16 of those employees so far. As previously disclosed, we also undertook other cost saving initiatives, including the deferral of approximately 20% of executive cash compensation into the third quarter, delayed the W56 cab chassis launch and completed the divestiture of the company’s Aero business along with other cost-saving measures. To put a finer point on the impact of these actions and other reductions, we have reduced the cash burn rate from approximately $11 million a month to $4 million per month in just the last three months alone. Ensuring Workhorse remains listed on the National Exchange, significantly benefits the shareholders and business as it enables a wider diversity of financing options and market availability as we move forward. Therefore, following the stockholders’ approval to authorize a reverse stock split, we had enacted a 1 for 20 reverse split and officially regained NASDAQ compliance. Turning now to highlights from the quarter on Slide 14. During the second quarter, we continued to take steps to extend our operational runway and manage our cash flow efficiently. We had additional successful financing this quarter and continuing our discussions with parties related to the sale-leaseback transaction for our Union City facility. Recent activity reinforces our optimism about our ability to drive additional purchase orders this year and grow our revenues. Sales net of returns and allowances for the second quarter of 2024 were $800,000 compared to $4 million in the same period last year. The decrease in sales 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 generated from operating the Stables by Workhorse and Drones as a service revenue before the divestiture and other service revenue. I want to mention that we received payment for the first 30 trucks of the previously announced purchase order of 141 trucks from a deal in the second quarter. However, due to delays in the CARB HVIP voucher approval payment process, the dealer was unable to deliver the trucks to the end customer by June 30, limiting the revenue recognized by the company in the second quarter. Workhorse expects to recognize most, if not all, the $2.2 million in deferred revenue related to the sale of W4CC trucks as revenue during the remainder of 2024. Cost of sales decreased by — decreased to $7.3 million in the second quarter, compared to $8.4 million in the same period last year. The decrease in cost of sales was primarily driven by a $4.4 million decrease in costs related to direct materials as a result of lower sales volume and higher volume of vehicles being capitalized into finished goods. Decrease was also due to a decrease in consulting expense of $500,000 as well as a $500,000 decrease in employee compensation and related expenses as a result of previously announced furloughs. The decrease in cost of sales was partially offset by a $2.7 million increase in inventory reserves and a $1 million increase in depreciation expense. SG&A expenses decreased to $12.1 million in the second quarter compared to $14 million in the same period last year. The decrease in SG&A expense was primarily driven by a $2.4 million decrease in employee compensation and related expenses, primarily due to lower head count, a decrease of $600,000 in marketing expenses during the period, which was partially offset by a $200,000 increase in depreciation expense and a $300,000 increase in information technology costs. R&D expenses decreased to $2 million in the second quarter compared to $5.1 million in the same period last year. The decrease in R&D expense was primarily driven by a $2 million decrease in employee compensation and related expenses due to lower head count and a decrease in consulting expense, which was partially offset by a $400,000 increase in prototype expense driven by the W56 208-inch wheelbase program. Net interest was $5.2 million, including a $3 million fair value adjustment compared to net interest income of $500,000 in the same period last year. Fair value loss in the second quarter was $600,000 due to the warrants issued by the company. The fair value adjustment in the prior year was nonexistent. Net loss was $26.3 million compared to $23 million in the same period last year. Turning to Slide 15 to discuss our balance sheet. As of June 30, 2024, the company had $5.3 million in cash, which decreased from $6.7 million quarter-over-quarter and $35.8 million at the end of 2023. So far this year, we invested $3.8 million in capital expenditures, primarily for the Union City plant, down from $10.5 million in the same period last year. As I mentioned, we are taking diligent steps to strengthen our balance sheet and liquidity position until we can execute on our product road map and deliver for our customers. We’ve taken significant restructuring actions that completed the divestment of our Aero business, which allows us to 100% focus on our EV business. Looking ahead, we are confident in our ability to generate additional purchase orders and revenue from our customers while strengthening our financial position, along with our partner in the financing side, we currently have $112.7 million of remaining facility available to us. With that, let me turn it back over to Rick.

Rick Dauch: Thanks Bob. Let me briefly discuss our near-term priorities, which are outlined on Slide 16. Simply put, our key strategic priorities remain: One, securing new orders, two, delivering world-class products and services to more customers; and three, advancing our product portfolio road map. To do that, we need to continue to find ways to effectively finance the company until we can reach volumes that allow us to achieve breakeven free cash flow in the future. We hope to see the benefits from California’s hybrid and zero-emission truck and voucher program, the HVIP vouchers and other government incentives to increase number as we work through the balance of 2024, which, along with federal and other state emission requirements, should drive EV sales. To get the transition to EV commercial vehicles underway, this is critical to small fleet owners like those that KTS is serving out in California. We do believe that at least one or two larger national fleets are committed and have Board approved CapEx plans to move forward on their EV plants, specifically in California and along the I-5 quarter in 2024 and ’25. In addition, we believe the government funded fleets in California, the Pacific Northwest and in select cities in the Northeast are looking to place orders yet this year or in early 2025, for the first tranche of Class 4-6 EV trucks. Finally, we continue to have meaningful discussions with federal agencies on both product demonstrations and pilot purchase orders. We continue to see increased interest in the W56 and to a lesser degree, the W4 CC. As more and more of our vehicles are hitting the road, demonstrating to new and existing customers the value and reliability of Workhorse vehicles, and how that compares to earlier version of EV products that they experienced that had very disappointing early results. The W56 is a true Workhorse, designed to withstand the workload placed on them over a 15 to 20-year lifespan. Our challenge right now is converting potential customer interest into tangible firm orders. As we navigate the current market environment, we are focused on extending our financial runway in order to emerge as a leader in the Class 4-6 segment. ATW has been an excellent financial partner for us, as we work through our extended start-up period and as we await the ramp up in future EV demand. As we look ahead to the remainder of the year, we will continue to advance our EV product road map and work diligently to gain momentum on the revenue side of the business. We have multiple, multifunctional teams on the road this week in California and Washington State, meeting with key fleets, our dealers and attending a green truck Summit into Tacoma, Washington. We look forward to providing updates as we make progress on the sales side of our business with specific customers. Being a pioneer in the commercial EV space is hard work and we need both industry and government leaders to live up to their public commitments on addressing CHG emissions. Most importantly, we need the large last mile fleets to make the hard, yet financially smart decision to start their transition to EV commercial vehicles. To generate revenue and establish a viable business here at Workhorse, we need customers to buy trucks. Now we’ll open up the call for questions, and I’ll turn it over to Kevin.

Operator: (Operator Instructions) Our first question is coming from Craig Irwin from ROTH Capital Partners.

Craig Irwin: I wanted to ask a question about the balance sheet. So at the end of the June quarter, you showed $46.5 million in inventory, can you maybe talk about how much of that is finished goods? And roughly, how many trucks does this represent? And I assume the 30 from KTS are not on there anymore, but you will have C&C trucks on the balance sheet. If you could maybe update us on where you stand there, that would be really helpful.

Bob Ginnan: Sure, Craig. So basically, as a rough breakdown of that probably $20 million to $24 million is finished trucks, about $12 million is batteries. And then the rest relates to parts that are primarily associated with the W56. And that’s kind of the rough breakdown of that inventory. And of that $20 million to $24 million in trucks, probably $10 million is associated with the one particular purchase order, which I think was your question.

Craig Irwin: Then the $4 million burn a month was the second thing I wanted to ask about. So that’s nice progress, really focusing down on what you need to do to execute in the short-term — in the medium-term, I guess. In that $4 million burn a month, do you have the capacity to maybe respond to the RFP out there from the post office? I understand there’s a 10,000-unit RFP would respond to that maybe be an incremental expense for you? How should we expect the tightness of your financial controls to impact the ability to participate there?

Bob Ginnan: Rick, I’ll start that and then turn it over to you to address the RFP. I think from our current burn rate, it — we’ve got the capital in place that we need to produce. The people to produce our current orders are in place where a large purchase order then changes that burn rate is in the working capital required to buy the materials. So that would be the area of focus for that. And of course, we’re very focused on our road map in terms of where our R&D dollars are going right now. So if it was something that would require diversion away from that, then obviously, that would be incremental cash spend as well. As far as the rest of the process, Rick, I’ll turn that over to you or Stan.

Rick Dauch: Yes. It’s a good question, Craig, in terms of — as these potential bigger orders come in, whether it’s from U.S. postal service or other fleets, we’ll have to address, as Bob said, our need to bring in working capital to build the trucks. Whether we can get down payments to help do that or we have to go out, if we get blue chip customers and secure an ABL, somehow to do that, we could talk about that. Let me start with when I got here in 2021, as you remember, Workhorse had sued the U.S. Postal Service. When we quickly dropped that lawsuit and we’ve worked the last three years to get back in good graces. And as that RFP is issued, I think will be on the bid list, it will be our job to go to earn that. That’s true at other customers. We had other customers who refuse even pick up our calls because of the failure of the C1000 way back in 2021. We’ve amended those fences and we are in active discussions with multiple fleets on multiple size orders. And we do think that Class 5-6, based on our head-to-head demos with some of our competitors, has proven to be a very reliable and robust capable truck. And hopefully, that converts over to PO soon between now and the end of the year.

Operator: (Operator Instructions) Our next question is coming from Mike Shlisky from D.A. Davidson.

Mike Shlisky: I guess I wanted to first ask about the pipeline of customers going into 2025. Given what you’ve signed now, I’d imagine if you haven’t signed anything by August, September, there won’t be much to ship in the first part on 2025. I’m just curious to see how much you’ve got in the pipeline, at least in the final phases of being signed to kind of get on to the road in the first part of next year?

Rick Dauch: We have two orders in house right now for about 30 trucks, which we have some of those built and then they got to go through the upfit process. There’s 15 of those are for W56 208, and 15 or for the W178 right now. We have additional pending orders that would have trucks shipped either late this year or early next year depending on what the upfit conditions are, okay. I used to be on the Board at the Shift Group a long time ago. As I recall, a lot of the big fleets negotiate as part of their budgeting process for the following year, they start budgeting how many trucks they’d like to buy and they button those orders in by October 1, and then they get approval from the Board later in the year, then you know how many trucks you’re going to build next year. So that’s where we’re working through right now. We’re sitting here in late August, basically. We hope to get some positive news on a couple of those fleets here between now and October 1. I know that one fleet we’ve tested with like our truck, so they prefer to use our chassis only and you put a body on that. We’ve worked with two of the upfitters that do those kind of bodies for that kind of fleet. And another fleet asked if we would go to a lower range vehicle, which would cost less money to help them their business case and we’re working on that right now as well. So most companies use the delivery vehicles travel less than 100 miles a day. As you know, with both our W4 CC and W750 and the W56 have a range of 150. So if you want a truck with less than 150-mile range, we need to go in, take a battery out, take out some of the cabling and come up with a 100-mile range truck, and that’s kind of what we’re working on right now is one of our variants as well. So does that help you? I think that — hopefully, that gives you positive the people like the truck, those who want the W56 and place an order or pending orders. Some wanted a bigger truck with more cubic feet, specifically the industrial supply and lending companies who carry very heavy payloads and they want to bulk out those trucks. I had a CEO tell me. I’ll buy a lot of your trucks when the car mandate takes effect and I want almost every one of my trucks in 1,200 cubic feet, not 1,000 cubic feet. On the flip side, big large fleet, you know who they are, I won’t say who they are. Said we want only 100 mile trucks. We’re going to use very few trucks that are more than 100 miles. And our experience at Stables is most of our trucks travel somewhere between 50 miles to 80 miles a day. We do have some country routes, I’ll call them outside of the suburbs that go out to 120 miles, 150 miles. And we’ve been able to handle those routes with the W750 and the W56 with ease. The only time we had some difficulties at 125 miles or more where it got to minus 20, back in Ohio back in January and February, we had a charge a couple of times there, okay.

Mike Shlisky: I also wanted to ask, you had mentioned — I think you mentioned putting a new project or a product on ICE temporarily as part of probably plan to preserve cash. How much of a departure was is that vehicle? Was it something that you would have been very complementary what you’re doing? Or is it something kind of brand new, different class, different signs? I’m just kind of curious to see.

Rick Dauch: Yes, it’s a complimentary Class 5-6 product based on feedback from our customers who are not using step van, okay? And so it just pushes out 12 to 18 months. It’s more for utility-type trucks and service trucks. So think of a W4 CC vehicle on steroids, basically a little slightly bigger. We see some open opportunities out there, especially in California and some of the utility companies that work there. So we’re looking at different ways how we skim that gap. But first, we have to make it through our launch and our birth, and that’s based on last mile delivery use of step van or strip chassis that are built into step vans. So short-term, we need to survive and move forward. And longer term, we can get the orders in here and build trucks and then we can add that on a product in the future. Doesn’t hurt us in the near-term financials, it will help us in the long-term.

Operator: We reached the end of our question-and-answer session. I’ll just turn the floor back over for any further or closing comments.

Rick Dauch: I appreciate everybody calling in, Craig and Mike, I appreciate your questions. Happy to have follow-up calls with you and Bob and Stan later today, and we’ll keep fighting here at Workhorse to make sure that we survive and win. Thanks a lot. Have a great day. Bye.

Operator: Thank you. That does conclude today’s teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

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