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Edited Transcript of WKHS earnings conference call or presentation 18-Mar-19 2:00pm GMT

Q4 2018 Workhorse Group Inc Earnings Call

Overland Park Apr 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Workhorse Group Inc earnings conference call or presentation Monday, March 18, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Duane Hughes

Workhorse Group Inc. - CEO

* Paul Gaitan

Workhorse Group Inc. - CFO

* Robert Harry Willison

Workhorse Group Inc. - COO

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Conference Call Participants

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* Thomas Gordon Boyes

Cowen and Company, LLC, Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, greetings, and welcome to the Workhorse Group's Fourth Quarter and Full Year 2018 Investor Conference Call. As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Workhorse Chief Operating Officer, Mr. Rob Willison. Thank you, Mr. Willison, you may begin.

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Robert Harry Willison, Workhorse Group Inc. - COO [2]

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Thank you, and good morning to everyone. We appreciate you taking the time to join us for our call. Before the market opened, we issued a press release and filed our Form 10-K with our results for the fourth quarter and full year ended December 31, 2018. Copies of both documents are available in the Investor Relations section of our website.

In a few moments, I'm going to turn the call over to our CFO, Paul Gaitan, who will walk us through our financial results for the quarter and for the year. After that, our CEO, Duane Hughes, will come online to provide an update on our business as well as to provide an outlook for the remainder of the year. But before we begin, I want to call your attention to our safe harbor provision for forward-looking statements that is posted on our website and is part of our year-end update.

The safe harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our 2018 Form 10-K and other periodic filings on file with the SEC provide further detail about the risk factors related to our business.

And with that, I would like to turn the call over to our CFO, Paul Gaitan.

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Paul Gaitan, Workhorse Group Inc. - CFO [3]

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Thank you, Rob, and thank you to all who are joining us for today's call. This morning, we issued a press release as well as filed our Form 10-K with the SEC, both of which discuss in detail the results of our operations from the quarter and year. I recommend going through those materials to get more color on some of the information being discussed today.

And now to our financial results for the fourth quarter and full year 2018. Sales for the fourth quarter of 2018 were $21,000, which was down from $5.2 million recorded in the fourth quarter of 2017. For the full year 2018, sales totaled $763,000, which was down from $10 million recorded in 2017. The decrease in sales for both the quarter and year was primarily due to a decrease in volume of trucks delivered. At this particular point in time, I want to stress that we believe year-over-year comparisons should not be considered as meaningful representation of current capacity of our business or potential interest in our vehicles.

Selling, general and administrative expenses in the fourth quarter of 2018 increased 80% to $2.7 million from $1.5 million in the fourth quarter of 2017. Expenses in Q4 2017 were favorably impacted by the reversal of pre-Q4 2017 accruals. Excluding the benefit in 2017 of the reversals, spending in 2018 was consistent with 2017.

For the full year 2018, SG&A expenses increased 30% to $11.5 million from $8.8 million in 2017. The increase in SG&A expenses for both the quarter and year was primarily related to the reversal of accrued expenses in 2017 that were accrued in prior years and higher spending in 2018 for advertising, investment banking fees and legal settlements.

Research and development expenses in the fourth quarter of 2018 decreased 52% to $1.7 million from $3.6 million in the fourth quarter of 2017. For the full year 2018, R&D expenses decreased 58% to $7.4 million from $17.7 million in 2017. The decrease in R&D expenses for both the quarter and year was due primarily to lower spending for the U.S. Postal Service Next Generation Delivery Vehicle and SureFly.

Total operating expenses in Q4 2018 decreased 13% to $4.4 million from $5.1 million in Q4 2017. For the full year 2018, total operating expenses decreased 29% to $18.9 million from $26.6 million in 2017. Net loss in Q4 2018 was $17.7 million compared with a net loss of $11.7 million in the fourth quarter of 2017. The change in net loss was due primarily to an increase in warranty reserve, which I'll get to shortly. The net loss for the full year 2018 improved to $36.5 million compared with a net loss in 2017 of $41.2 million. The lower net loss for both the quarter and year was due primarily to a decrease in the volume of trucks delivered and reduced spending on SureFly and the U.S. Postal Service Vehicle Program.

As of December 31, 2018, the company had cash, cash equivalents and short-term investments of $1.5 million compared to $4.1 million as of December 31, 2017. There was one notable item on the income statement that deserves further comments, warranty expense. Warranty expense for the years ended December 31, 2018 and 2017 were $8 million and $0.1 million, respectively. The increase during the current year relates to issues with certain battery packs in our 2016 and 2017 E-series trucks. During the fourth quarter of 2018, our proactive monitoring of vehicle performance helped us discover vendor-related issues. To immediately address the issue from the customer perspective, some vehicles have undergone replacement of the battery pack components. We will continue to evaluate the situation and discuss potential compensation from our suppliers. $6.9 million of the expense was recorded in the fourth quarter to increase the warranty accrual. The accrual includes coverage for labor and transportation and excludes any contribution from related vendors.

It's important to note that this is a historical problem and does not apply to the new N-GEN design. I would now like to take a moment to comment on some of our recent capital markets activities before turning the call over to Duane.

First, in January, we announced that we had closed a financing in the amount of up to $35 million with Marathon Asset Management. The proceeds were used to satisfy full repayment of senior secured notes that were incurred in July 2018 and will be used for current working capital tooling and equipment to fulfill existing and future customer purchase orders and contracts. The facility has a 3-year term secured by a first priority lien on all assets. Funds will be provided in 2 separate tranches. The first tranche, which is a $10 million lump sum amount, has been distributed and was used principally to satisfy repayment of the 2018 senior secured notes. The remaining $25 million is now functioning as a revolving credit facility from which Workhorse may draw down as necessary to meet existing and future purchase orders. This is a landmark piece of financing that provides funding for vehicle production without relying on equity funding.

Also, we recently closed a private offering with long-time investors for roughly $1.5 million. Benjamin Samuels and Gerald Budde, directors of the company, participated in this transaction. We feel their financial support should be viewed as a strong vote of confidence in our near-term prospects and long-term viability. Going forward, as has always been the case, our primary goal for both current and future capital initiative is to leverage the best available financing solutions that will provide liquidity and favorable economics. We continue to look for long-term strategic partners and collaborators that are aligned with our mission and who can provide creative financing on minimally dilutive terms. Our battery leasing program with Duke Energy, which we announced in November, is one such example. Duane will provide more commentary on that initiative shortly.

Achieving positive EBITDA remains our top priority with respect to production. Finally, as we mentioned on our previous call, in September, we retained an investment bank to facilitate a strategic transaction for our electric vertical takeoff and landing, or eVTOL, aircraft, SureFly. The original intent of this transaction was to address a covenant that was part of our previous debt agreement that required Workhorse to sell SureFly.

While we're no longer required to consummate a deal of any kind, it's our opinion that a sale of the SureFly business would be the most effective course of action in order for us to support the long-term health of our truck manufacturing business. With the covenant deadline removed, we have the freedom and flexibility to pursue the right transaction. We remain in active discussions with several interested parties, and we'll provide updates if and when a deal is finalized.

Now I will turn the call over to Workhorse CEO, Duane Hughes, to discuss some of our major operational updates and provide our outlook for our business in 2019. Duane?

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Duane Hughes, Workhorse Group Inc. - CEO [4]

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Well done, Paul, and welcome, everyone. We appreciate you for joining us on our call this morning. I want to first address a recent change in our management team. As many of you may be aware, we had a formal management change in February as Steve Burns, our founder, stepped down as CEO, and at the Board of Directors' request, I assumed the role of Workhorse CEO.

Before I get into my prepared remarks, I'm taking a moment to acknowledge Steve and his contributions to Workhorse. I'd like to publicly thank him on this call for everything he has given to this organization over the last 12 years. Steve is both a product creator and an innovator, 2 ideals upon which Workhorse was founded. His leadership from Workhorse's very beginning through today has been invaluable to me as well as many others. Thankfully, he's not going anywhere in the near term. We've been very fortunate to have him stay on to lead the efforts of our SureFly team as well as ensuring a smooth transition.

On a personal level, I'm both excited and ready to take on this added responsibility and look forward to leading Workhorse into the next phase of growth, transitioning from an entrepreneurial, development-stage company to a highly focused, production-oriented company. This is not to say we are stepping away from innovation. To the contrary, we are channeling various aspects of both product engineering and manufacturing to provide the finest electric delivery vehicles in the industry.

Now with that explanation behind us, I'd like to spend some time to hit the reset button on a number of fronts. It's my first call as CEO, so I want to level set here. Our focus in 2019 is to change our culture and concentrate our energy on becoming a world-class commercial truck builder. Our mission is to deliver trucks at a profit, and we recognize the best way to reward our shareholders is to deliver on this objective.

When I finish speaking today, I'd like you to walk away with 3 reasons why in 2019 we are now ready to execute on our long-term growth plan. The first of these 3 is the most obvious and the one that has challenged us most to date, capital. While we do like to point out Workhorse has significant real-world experience with blue-chip customers and our trucks have logged millions of miles across the country, it is important to note we really have not been around that long in the grand scheme of things. Going after large-scale electric vehicle manufacturing is a major endeavor that's being undertaken by companies much larger than Workhorse in an industry that has required billions of dollars in investment for other major players in our space, we've done it more efficiently.

We're incredibly proud of the work we've done, the vehicles we've built and the accomplishments we've made. However, we do recognize there's still much to do. Accomplishing our to-do list will require us to manage a smaller portfolio of innovation with a renewed sense of focus on manufacturing the vehicles our customers have ordered. Our focus is squarely on our commercial vehicle business, primarily in the last mile delivery segment with our N-GEN platform, followed by our efforts to bring the W-15 pickup truck to market. This likely isn't news to anyone on this call, but transparency in this effort is paramount. Making electric vehicles is a complex and challenging business. This is still a nascent industry with a lot of development and growth ahead of it, which will require meaningful capital, especially as we continue to work toward price parity with traditional internal combustion engine vehicles. This leads me to the Marathon Asset Management deal we closed on December 31, 2018. This financing agreement is a -- is significant for multiple reasons. To start, it's the first financing of this sort and size Workhorse has ever been able to attain. Its purpose is to most effectively get us to the starting gate to begin production. More specifically, this revolving line of credit essentially enables us to shift away from our historical method of using equity funding to buy parts and replacing it with a revolving facility that further enables us to reduce our dependence on equity sourcing and its dilutive nature.

As important as this financing is to us, it's not the only piece to the puzzle. However, it is an absolute key to helping us achieve our production focus and business plan.

The second reason why we'll succeed is our personnel. We have a strong experience team here at Workhorse. We've had a number of personnel changes the past few months. Some of these changes occur as part of the normal attrition that happens inside companies, while other changes are made to help us align our company with our goals and our renewed focus. A few weeks ago, we appointed Dr. Robert Willison as our new COO. He returns to Workhorse from his former position as Director of Research and Development here at Workhorse, where Rob was responsible for various electric vehicle programs and systems. But where he was most instrumental was in leading our work with the United States Postal Service Next Generation Delivery Vehicle Program.

On a personal level, having served as Rob's predecessor, I'm acutely aware of the demands of the COO position as well as Workhorse's needs for the role going forward. Having also worked closely with Rob in the past, I'm convinced of his ability to get this job done. He possesses a unique blend of technical capabilities, people skills and leadership experience, all of which will serve him well in his position. Rob's main directive and the chief emphasis of our company for the foreseeable future is the manufacturing and delivery of N-GEN electric delivery trucks to fulfill the sizable number of purchase orders currently making up our backlog.

Coming into this position with experience and understanding of Workhorse, our technological capabilities, our vendor relationships and our customer-first attitude, Rob has already hit the ground running. Which takes me to my third point and our focused approach to growth, trucks first. The trucks first strategy will enable us to reduce our financial losses, move to breakeven and ensure future profitability. The first step in this strategy applies to our N-GEN platform. In addition to engineering this vehicle to be what we feel is the best and most efficient last mile delivery vehicle, we're also designing it with a goal of producing each truck on a profitable basis. To have a final design, a proven factory, an experienced Tier 1 supply chain and a reputable service system all operating in sync is no small feat. It requires 100% focus by 100% of the company in order to be sure that our blue-chip customers are repeat customers.

To further support our push to profitability on vehicle production, we announced in November the beginning of our growing relationship with Duke Energy. This relationship is intended to create an even more cost competitive electric vehicle alternative through a leasing program as well as the development of a Behind The Meter initiative by Duke. This will assist our customers in overcoming infrastructure issues, which remain the biggest hurdle for fleets wishing to implement commercial electric vehicles at scale. Beyond overcoming the infrastructure objection, we believe the Duke relationship will help Workhorse improve revenue, cash flow and ultimately profitability.

Our Workhorse tagline is work ahead. Our mentality isn't to change the world, but simply to change the way the world works. Our last mile delivery systems are designed specifically to enable last mile delivery companies to change the way they work, to become more efficient, further improve their competitive edge and ultimately improve their bottom line.

In the past, we've been characterized by the sheer number of innovative driving and flying machines we've created. Our engineering efforts in producing these platforms are designed to revolutionize the way companies execute their electric vehicle strategies and their last mile delivery efforts. While all of our innovations have been relevant to the markets we serve, our full focus is now on our products that will have an immediate impact on our revenue with a singular focus we are now putting the last mile first.

Today, the largest fleet operators buy our trucks. We continue to diversify our customer base as Workhorse delivery vehicles are currently used by -- currently used daily by UPS, FedEx, W.B. Mason and others and will soon be used by DHL. Tomorrow, our vision is that Workhorse vehicles will become more ubiquitous with both large and small business customers, which will expand our market and reduce our reliance on a concentrated group of key customers.

With our overall strategy now outlined, I'd like to provide it -- provide some key business updates since our last call. I'll start first with our N-GEN family of electric vans. The N-GEN 1000 is a low bore, lightweight energy-efficient green machine. The N-GEN platform of electric delivery vans represents a clean sheet of paper design. The N-GENs will be available in a range of sizes, starting with the 1,000 and 650 cubic foot models. These revolutionary vehicles are designed to reinvent the last mile delivery urban work van.

As we've discussed in earlier calls, we performed real-world delivery testing of the N-GEN 450 pilot vehicles, and our initial results demonstrated solid performance in some of the most challenging delivery situations. We delivered thousands of packages in our manufactured test vehicles. These miles on the road contributing to real-world deliveries have provided us with tremendous insights to optimize the continued development of our N-GEN platform, specifically, the N-GEN 1000.

The N-GEN 1000 is our initial focus for transitioning to production. We are conducting customer reviews of the vehicle to make sure we are achieving their expectations, while assuring the design is suitable for large-scale production. Our process is methodical and designed for success. Beyond the familiarity and trust that we built over time with our electric vehicles, we have learned a great deal about last mile delivery and have institutional knowledge of how to best work together with our customers.

Our customers have made a commitment to us and the program. So now it's about getting it done right for both the customer and Workhorse.

Although our factory continues to be configured to produce up to 30 vehicles a day, we will only move to increase our throughput when we have finalized product and delivery schedule to support this shift to scale production. We have a backlog of nearly 1,100 units to work through, which will take some time, but we expect to have the capacity to deliver the majority of these vehicles this calendar year.

Moving next to SureFly. As Paul mentioned earlier, we remain committed to selling SureFly to further support our focus on truck production. We are in discussions with a number of interested parties as it relates to potential purchase. We are very optimistic about the future prospects for electrical vehicle takeoff and landing in general, and SureFly specifically. We absolutely feel that finding a suitable buyer for the business will be the best course of action to continue our focus on N-GEN production.

In Q4 2018, we continued to support the sales process by making significant process -- progress with SureFly's development. First, in November, we announced a cooperative research and development agreement with a branch of the U.S. military. It is designed to enable a collaborative R&D program, focused on military applications for the SureFly. While we aren't permitted to go into too many specifics, what I'm able to say at this time is that this particular branch is interested in autonomous vehicle applications, and our team is working to create a similar vehicle using the existing SureFly platform that meets the specific needs of the CRADA.

In the meantime, this CRADA will enable Workhorse to validate and test real-time use cases of the SureFly. Most recently in December, we also exhibited the SureFly at the Detroit Auto Show, which went well and generated a lot of interest with continuing sales-related conversations.

On the development side, over the past 12-month period, we've been conducting manned test flights under our FAA experimental status as we work towards type certification. Our priority 1 status awarded by the Compliance and Airworthiness Division of the FAA in June 2018 is a key differentiator in creating additional value to further support a SureFly sale.

To our knowledge, the SureFly design remains the only hybrid electric VTOL multicopter to reach this important milestone with the FAA. We have submitted a pathway document to the FAA and continue to work towards certification.

Now let's move on to our W-15 pickup truck discussion. Since our management change, I have been asked a lot about our W-15 direction. Clearly, the W-15 design and production has fallen behind schedule due to our challenges with capital needs. Even though we are behind, we are doing our best to mitigate these delays, primarily by incorporating our N-GEN, chassis and powertrain engineering efforts to support the W-15 design and development going forward.

As everyone likely knows, we have roughly 6,000 preorders for the W-15 and there continues to be immense interest in this vehicle, specifically from commercial fleet operators. As we've also stated previously, our production plan with respect to our W-15 electric pickup is contingent upon the successful ramp in production and delivery of our N-GEN platform.

We are having ongoing discussions with potential partners about our opportunities to expedite W-15 production. As we move forward, we will continue to provide updates on our progress as we are able.

A brief obligatory comment on the United States Postal Service contract. I know there will be questions about this topic, but our answer at this point remains the same. We are pleased with how our vehicles perform through the Postal Service testing process. However, we are limited in what we can say about any participation in the NGDV replacement program. The Postal Service has restricted all participating parties from commenting on the program, and we are respecting their wishes. We will provide updates when we are able.

That pretty much does it for my updates. I'll just make some final closing comments. Today's call has been more extensive in the way of prepared remarks than how I plan to do things going forward, but my hope is that our point has been made abundantly clear. It's time to set aside the entrepreneurial development-oriented hat and put on our production hard hat. While the fourth quarter and 2018 as a whole were a challenging time for our business, we've entered the new year with a different attitude and focus on improving our operational capabilities. Once more, we are clearly in an improved capital position with our Marathon credit facility. We are making personnel moves in our transition from a development-oriented organization to an electric vehicle manufacturer. Furthermore, we have a plan in place that will allow us to make that jump once and for all.

First, we secured $35 million in financing that has provided the necessary capital to allow us to build vehicles at scale. Additionally, we are aggressively moving forward with our effort to consummate a sale for our SureFly business to further support our capital requirements ahead of necessary spending ramp-up. Second, we made strategic personnel changes that will allow for speedy transaction -- transition to scale production. Third, we are committed to our trucks first plan by focusing solely on our core competency, designing and building high-quality electric delivery vehicles. We look forward to updating you on our progress in all of these areas as we further our mission of transforming the future of last mile delivery. We're now ready to open the call for your questions. Operator, please provide the appropriate instructions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Thomas Boyes with Cowen and Company.

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Thomas Gordon Boyes, Cowen and Company, LLC, Research Division - Associate [2]

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With the $35 million in financing secured, what type of ramp could we expect from the N-GEN platform? I know in the past, I think we've talked about maybe a 60-day lead time on parts. If that's the case, when should we start to anticipate seeing deliveries flow into the P&L?

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Duane Hughes, Workhorse Group Inc. - CEO [3]

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Thanks for your question, Tom. This is Duane. I'll go first and if Paul or Rob want to jump in, they can as well. I'll start with first that, in the past and historically, we haven't provided any guidance in terms of the actual delivery time lines and schedules. But I would tell you that you're correct as far as the lead time on parts, we're looking between 60 and 90 days on those long lead time items with the ability to begin delivery shortly following receiving those parts. So we do look to ramp up rather quickly from the point we start to -- start the ordering process. I mean as I said in my earlier remarks, we expect to be prepared to have the capacity to produce a volume -- the majority of the trucks on order this year.

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Thomas Gordon Boyes, Cowen and Company, LLC, Research Division - Associate [4]

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Great. That's very helpful. And then just actually a quick question on the W-15. What are the funding plans for that platform? Is it to see -- could we see a similar financing structure to what you secured for the N-GEN platform? And then also just do you have a sense of when all the tooling would be in place for that? Or is that also kind of contingent on the N-GEN platform?

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Duane Hughes, Workhorse Group Inc. - CEO [5]

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Yes, everything is contingent upon the N-GEN platform as we really focus our efforts on finalizing the N-GEN and getting it into production, giving us the opportunity to reach the profit levels that we talk about. As far as the W-15, I'll -- a number of things are on the table, including a similar financing. That particular vehicle, as you know, is a much larger market opportunity or volume of sales vehicle, clearly having about 6,000 on preorder, we are motivated to get it to production. But at the same time, given the integration, if you will, the sharing of the parts and the supply chain that we will take advantage of to complete the W-15 engineering to move it into production, we are looking at other potential suppliers and strategic partners who can help us bring it to production more quickly. You want add anything?

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Robert Harry Willison, Workhorse Group Inc. - COO [6]

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Yes, Tom, this is Rob Willison. One thing we're looking across our platforms is commonality of parts, as Duane had said, and that engineering effort with the commonality parts comes cost reductions and price advantages, minimizing stock, and it's just good engineering. So we're going through some of those efforts right now.

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Thomas Gordon Boyes, Cowen and Company, LLC, Research Division - Associate [7]

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Great. That's also very helpful. If I could sneak one last one in there. Just given the partnership with Duke Energy, could you give us a sense of maybe the opportunity there? Who are the target customers? Is it someone -- is that -- was that a limiting factor for, say, FedEx or UPS? Or is this more targeted towards regional enterprises where they much -- may have a smaller scale where we only have maybe 10, 15 trucks?

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Duane Hughes, Workhorse Group Inc. - CEO [8]

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No. Because of the depth and breadth of the Duke Energy platform, it goes well beyond just battery and vehicle leasing, but providing the Behind The Meter services. I would think of it more as a larger program that Duke is looking from an eFleet services business perspective, and ultimately helping any fleet, large or small, overcome the largest hurdle in rolling out electric vehicles at scale, which is truly the infrastructure needed. You can imagine with 100 or 200 vehicles in a depot, getting that depot electrified to support that number of vehicles is often a challenge. So we expect to see Duke come in from all aspects or all-size customers with the ability to provide a program that allows them to help them overcome those objectives of -- those objections of infrastructure, helping us to more quickly deliver our vehicles at scale.

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Operator [9]

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Our next question comes from the line of [Carter Driscoll], who is a private investor.

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Unidentified Participant, [10]

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Congratulations, Duane, on your new position. So just to kind of follow up on the prior question. Is the -- obviously, the biggest component of your backlog is the order you have with UPS. And kind of concurrent with that rollout, I know you don't want to talk specifically about the number of vehicles you're hoping to produce this year. I know you talked about hoping to satisfy the majority of them this year. Is the plan by UPS when you get through the final testing and start to ramp production to bunch those orders at a specific site? And does that therefore beget the need for Duke to be involved at that level if they are attempting to put, say, a couple of hundred vehicles at a specific spot? Just trying to get a sense of, is there a limiting or gating factor with what you're trying to pursue with Duke in relationship with the large order you have with UPS, I'm just trying to understand how that should evolve over the course of the year?

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Duane Hughes, Workhorse Group Inc. - CEO [11]

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Great question. And I don't want to speak for UPS in terms of their delivery schedule specifically. I would say that it's a combination, [Carter], where they -- I know that the relationship between Duke and UPS, as it's filtered through Workhorse is to identify locations where they can electrify entire depots to support a large number of vehicles in those depots. But at the same time, UPS looks at their business and says where can we most effectively put the electric vehicles as they're delivered by Workhorse to give us the biggest bang for our buck. So the answer is really both of what you said. They will be spread out across multiple depots, but I would expect that there will be select depots, likely in the Duke service territory, that will be built out to support the larger number of vehicles in a depot. So we'll see a combination of both that in the 1,000-plus units we need to deliver to UPS as soon as possible.

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Unidentified Participant, [12]

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Okay. And then maybe just a quick second question, if I may. In terms of, obviously, restriction from a covenant perspective and the time frame of monetizing SureFly, I think in the past you talked about maybe a possibility of retaining some level of ownership. Is it the -- is it your plans to fully monetize and divest these assets? And maybe talk about some of the natural buyers or the discussions among the different groups of buyers that you're engaged with in terms of what they find attractive relative to the other competitive VTOL entries out there today?

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Duane Hughes, Workhorse Group Inc. - CEO [13]

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Sure. Another good question, [Carter]. I really appreciate that. So we -- as you can imagine in the numbers of potential prospects that we have talked to in the past and continue to talk to, there are a variety of those who want to have an investment in and allow the SureFly team, if you will, to continue the development of it, which would lead to where Workhorse would maintain a minority ownership through -- yes, a minority ownership. But primarily we're really focused on finding an owner of -- a majority owner, ultimately a 100% owner of SureFly where we can, as you said, monetize the SureFly product to allow us to bring that in as money that we can use to capitalize our truck building and go to production process, including the W-15. So ideally, we'll find a partner who wants to take the SureFly product on -- in 100% and move towards certification and all things that they need to do, maximizing our ability to monetize it. In the event that other partners who are very strategic in nature, who we're talking to, come in and say, we'll take 51% or more, if the opportunity exists, we will certainly consider that and bring it to the board for consideration.

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Unidentified Participant, [14]

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Then maybe just competitively, could you highlight where you think you're differentiated versus while there's a hybrid approach, where were you on the certification process vis-à-vis some of the exorbitant private round valuations you're seeing out there today and maybe expectations of what you think are realistic to monetize this.

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Duane Hughes, Workhorse Group Inc. - CEO [15]

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Right, right. I would tell you -- another good question. You're correct. The exorbitant cap -- market caps that these companies are giving, the amount of money they're bringing in is astounding, if you will, in that space. And while we think we lead in that position is number one, to your point, is our priority 1 status through the type certification process where we've been working with the FAA since late 2017 very closely and have an approved plan to get through certification. That approved plan came with what we have said in the past as priority 1 status, which gives us a unique position within the FAA to be first 2 type certification. But above and beyond, that most important aspect is the machine itself, which does have a hybrid capability. Of course, our E-GEN trucks that we delivered, which were range-extended hybrid vehicles, give us an extreme amount of experience and understanding how to generate electricity to keep those batteries charged, to keep that machine flying. And we believe with the state of batteries where they are today, even where we expect them to be in the near term, gives us a complete leading position as what we believe is the only hybrid VTOL at least in the FAA certification process to bring this vehicle to market and generate revenue more quickly than our competitors, big or small.

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Operator [16]

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(Operator Instructions) At this time, this concludes the company's question-and-answer session. If your question was not taken, you may contact Workhorse's Investor Relations team at WKHS@liolios.com. I'd now like to turn the call back over to Mr. Hughes for his closing remarks.

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Duane Hughes, Workhorse Group Inc. - CEO [17]

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Well, thank you again, everyone, for joining us on our call. I especially want to thank our employees, our partners and our investors for their continued support. We appreciate your continued interest in Workhorse, and of course, we look forward to updating you on our next call as we continue to move forward. Operator?

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Operator [18]

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Thank you for joining us today for Workhorse Group's Fourth Quarter and Full Year 2018 Earnings Conference Call. You may now disconnect.