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Edited Transcript of WKHS earnings conference call or presentation 7-May-19 2:00pm GMT

Q1 2019 Workhorse Group Inc Earnings Call

Overland Park May 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Workhorse Group Inc earnings conference call or presentation Tuesday, May 7, 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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* Jeffrey David Osborne

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Michael Brcic

National Securities Corporation - SVP of Investments

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Presentation

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Operator [1]

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Ladies and gentlemen, greetings and welcome to Workhorse Group's First Quarter 2019 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, operator, and good morning, everyone. We appreciate you for taking the time to join us for our call.

Before the market opened, we issued a press release and filed our Form 10-Q with our results for the first quarter ended March 31, 2019. 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. After that, our CEO, Duane Hughes, will come on the line and provide an update on our business as well as provide an outlook for the remainder of the year.

But before we begin, I wanted 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 details about the risk factors related to our business.

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

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

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Thanks, Rob, and thank you to all who are joining us today for the call. This morning, we issued a press release as well as filed our Form 10-Q with the SEC, both of which discuss in detail the results of our operations from the quarter. 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 first quarter. Sales for the first quarter of 2019 were $364,000, which was down from $560,000 recorded in the first quarter of 2018. The decrease in sales was primarily due to a decrease in the volume of trucks delivered. At this point in time, I want to stress that we believe year-over-year comparisons should not be considered as meaningful representations of the current capacity of our business or potential interest in our vehicles.

Selling, general and administrative expenses in the first quarter of 2019 decreased 12% to $2.1 million from $2.4 million in the first quarter of 2018. The decrease related primarily to lower spending in areas such as marketing and employee-related costs partially offset by an increase in stock compensation expense.

Research and development expenses in the first quarter of 2019 decreased 42% to $1.4 million from $2.3 million in the first quarter of 2018. The decrease in research and development expenses was due primarily to lower prototype expenses related to the U.S. Postal Service Next Generation Delivery Vehicle, or NGDV, and SureFly.

Total operating expenses in Q1 2019 decreased 27% to $3.5 million from $4.7 million in the same period last year. The decrease in total operating expenses was due to the lower SG&A and R&D spend previously mentioned.

Net loss in the first quarter was $6.3 million compared with a net loss of $6.4 million in the first quarter of 2018. The improvement in net loss was due primarily to the significant reduction in operating expenses previously mentioned, partially offset by an increase in interest expense due to higher levels of debt compared to the prior period. This is due to the Marathon credit agreement that retired existing debt and provides for an ongoing source of funds to support production on confirmed purchase orders.

As of March 31, 2019, the company had cash, cash equivalents and short-term investments of $2.8 million compared to $1.5 million as of December 31, 2018.

On our last call, I mentioned that we had reported on a significant warranty accrual in Q4 mostly related to issues with certain battery packs in our 2016 and 2017 E-series trucks. We identified this problem thanks to our proactive monitoring of vehicle performance.

As an update to the warranty expense situation, we are in discussions with the connected vendors regarding the affected parts that resulted in the quality issues. Additionally, we are implementing design improvements for repairs of the affected legacy trucks. We are making modifications based on the lessons learned. As I mentioned earlier, we believe this issue to be isolated, historical and does not and will not apply to the new N-GEN design.

Now before turning the call over to Duane, I'd like to provide an update to our financing activities. Subsequent to the quarter end, on April 30, we entered into a subscription agreement with existing and new Workhorse investors and sold nearly 4 million shares of common stock at a price per share of $0.74, resulting in proceeds of $2.9 million that will be used for working capital and general corporate purposes. A substantial portion of the raise was from existing investors, which Workhorse sees as a sign of strong confidence in the company's future.

Also related to Marathon and on the same day, we entered into a third amendment to our credit agreement to extend our minimum liquidity covenant, providing that at least $4 million be on hand at the end of each month beginning May 31, 2019. We are appreciative of Marathon's support and flexibility in providing us an adequate timetable in which to secure financing for our company and on terms that will help promote our long-term viability.

Going forward, as has always been the case, our primary goal for both current and future capital initiatives 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. Achieving positive EBITDA remains our top priority with respect to production.

Finally, as we've mentioned on previous calls, in September of 2018, we retained an investment bank to facilitate a strategic transaction for our electrical vertical takeoff and landing, or eVTOL, aircraft known as SureFly. It's our opinion that a sale of the SureFly business would be the most effective course of action for us to support the long-term health of our truck manufacturing business. We remain in active discussions with several interested parties and will provide updates if and when a deal is finalized.

With that overview completed, I'll now turn the call over to Workhorse CEO, Duane Hughes, to discuss some of our major operational updates and provide an outlook for our business for the remainder of 2019. Duane?

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

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Thanks, Paul, and welcome, everyone. We do appreciate you joining us on our call this morning. Generally speaking, the first quarter was another solid data point of progress for Workhorse in our shift from a development-oriented organization to a high-tech, production-focused EV company, concentrated on finalizing the engineering of the N-GEN and delivering on our orders with our blue-chip customers.

For today, my remarks will not be as extensive as they were on our year-end call in March. Given that so little time has passed since the end of year call, I'll be limiting my comments to updates on our most recent partnerships. I'll then hand the call over to Rob Willison to give a brief update on the progress with our last-mile delivery, next-generation vehicle platform, and will then conclude the call with our question-and-answer period.

To begin, I will discuss our recently announced alliance with Duke Energy. Duke is one of the largest utilities in the United States and has demonstrated confidence in Workhorse and our go-forward strategy. The alliance is a first-of-its-kind industry-leading transaction for many important reasons. To effectively describe and understand the transaction, my approach is to explain the benefits that the alliance creates. Among the most important benefits of the alliance to Workhorse is how the alliance supports our ability to deploy electric vehicles at scale. Building EVs by the thousands rather than the hundreds gives Workhorse the opportunity to achieve profitability.

Workhorse benefits from this alliance by being part of Duke's larger strategy to overcome the most significant obstacles presented by fleets when purchasing EVs in significant quantities. The 3 most obvious challenges to having fleets adopt e-vehicles -- EVs at scale include: infrastructure needed to support the EVs, the EV's acquisition price and the battery end-of-life disposition requirements or secondary use options.

Regarding infrastructure, beyond the proven performance of the electric vehicle and the financial benefits that come from an EV as compared to an internal combustion engine vehicle, is the cost of setting up depot-wide infrastructure build-out and support. With electricity replacing conventional fuel, each depot requires the behind-the-meter infrastructure required to support the complete refueling of each vehicle on a nightly basis. When you consider the basic idea that an ICE vehicle can readily fuel up at any gas station on demand, enabling it to complete the deliveries on any given day, an electric vehicle doesn't have the time or access required to refuel. This means each night, the vehicle needs to go through a charging or refueling cycle in order to have enough electricity to complete its route on a daily basis.

In other words, without access to on-demand charging, the fleet is unable to recognize the dramatic efficiencies of the EV without the associated infrastructure required. The infrastructure needs are further complicated when the fleet wants to provide depot-wide electrification, enabling them to replace all or a vast majority of their ICE vehicles with EVs. Depot-wide electrification encompasses much more than just putting charging stations in place inside the depot. Consider the size of the pipe required to deliver the amount of electricity for the depot to support their current needs in addition to charging hundreds of vehicles. This brings a host of needs up to and including smart-charging capabilities and beyond.

Duke is equipped to provide the behind-the-meter infrastructure, including equipment, expertise, cash outlay options and management solutions at an affordable price point. Our partnership with Duke further enables our delivery fleet customers to integrate EVs at scale, utilizing Duke's turnkey solution while maintaining their focus on their core mission.

Acquisition price. Traditionally, the cost of EVs is seen as an impediment to fleet electrification. Although fleets have the advantage of planning around the total cost of ownership savings, the initial price of EVs has commonly been an obstacle to achieving an acceptable ROI. Automotive is a volume game. OEMs require volume to build an efficient and price-effective supply chain while also spreading production assembly and manufacturing costs across a much larger volume of vehicles being produced.

An OEM with volume-based orders enables the OEM to deliver vehicles at a profit, further enabling the OEM to design and build highly innovative, purpose-built and cost-efficient delivery vehicles that further enable the fleet customer and the OEM to compete more effectively and grow their market share.

Our alliance with Duke Energy will provide for a strengthened leasing program that will allow our fleet customers to improve electrification economics, enhance Workhorse's cash flow and provide a series of services that address other areas of improvement beyond acquisition costs.

Additional benefits to Workhorse include the ability to help fleets overcome the challenges to deal with future battery pack disposition and secondary uses. Fleets who are working through their longer-term strategy of adopting EVs will recognize the value created by our alliance with Duke, who is uniquely positioned to create a secondary use market for battery packs. These degraded packs, while no longer providing the range required for a delivery vehicle, are still viable for other uses such as energy storage platforms. While battery capacity is degraded over time, at the point where the battery pack is reaching its end of life as far as the delivery vehicle is concerned, the pack still has useful capacity for these other areas of use, helping commercial fleets overcome yet another challenge in their electrification strategies. Ultimately, our alliance with Duke Energy allows Workhorse the ability to deliver the best-performing and most affordable electric trucks to benefit all its customers and stakeholders.

During the quarter, we did provide services in a consulting capacity, which allowed us to support our current capital needs while we continue to pursue additional financing. First, we continued our combined work with Dana Inc. and completed certain key project milestones, including upgraded battery packs and other technologies. Additionally, we recently completed work with the University of Minnesota on its ARPA-E NEXTCAR project.

That covers partnership-related items. Before I turn the call over to Rob Willison, I want to provide a very brief statement regarding the United States Postal Service Next Generation Delivery Vehicle program. As many of you on this call well know, Workhorse is currently among a handful of finalists for the USPS NGDV project. We have made -- I'm sorry, we have been made aware that there are a number of media outlets and other sources that have reported on updates to the program. As we have stated many times in the past, we are not permitted to comment publicly on any updates whatsoever related to the selection process or progress being made on the final decision. However, I would like to reiterate that we remain confident in the strength and quality of our prototype vehicles and the way they performed during the testing process.

I will now turn the call over to Rob for a quick update on our next-generation vehicle. Rob?

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Robert Harry Willison, Workhorse Group Inc. - COO [5]

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Thanks, Duane. I will address our newest platform, the N-GEN. Current step vans have evolved from 1930s medium-duty trucks. They've been body on frame with square size and flat windshields. The floor heights are tall, requiring a delivery driver to take several steps up and down to enter and exit the truck. And of course, carrying packages puts further stress on the driver's body.

The weight of the vehicle approaches 20,000 pounds for a 1,000 cubic foot van. And like any vehicle, that weight must be propelled down the road, up hills and through the air stream. This weight affects mileage, which, in turn, affects fuel and operating costs.

Though the word is often overused, what was needed was a revolutionary change versus an evolutionary change of electrifying a current weighty metal vehicle. The solution is the N-GEN family of trucks. Initial configurations will support a variety of cargo sizes. These are all composite vehicles that are lighter with a flat floor a mere 20 inches from the ground, are more aerodynamic and have longer lives than their metal counterparts. It has better sight lines than current step vans and because of its construction, is inherently safer for the driver.

Additionally, it can be equipped with a suite of safety items, including lane departure warning, pedestrian detection, 360-degree camera and reverse obstacle detection. Several low-cost features will improve the value to the customer. Body panels will be gel-coated, enabling a robust protective coating for the external body parts. Sacrificial rub rails will be easily replaceable for low-speed scrapes. Bumpers will be spring steel. These design details will reduce traditional costly repairs.

The battery pack is actively cooled and heated with a modular approach, enabling various range options. We shared this design with our strategic customers, including UPS, DHL and others. Drivetrain development mules are currently being tested, followed by additional testing mules. Production-intent mules will allow for the refinement of fit and finish, NBH, assembly techniques and final driver ergonomics. We are on schedule for late fall beginning of production.

I will now turn it back to Duane.

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Duane Hughes, Workhorse Group Inc. - CEO [6]

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Thanks, Rob. Of course, we will provide more definitive time lines and delivery schedules as the process continues to develop throughout the course of the next several months. We look forward to updating you on our progress in all of these areas as we further our mission of changing the way the world works.

We're now ready to open the call for your questions. Operator, please provide the appropriate instructions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Jeff Osborne from Cowen and Company.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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Just a couple questions on my end. Can -- how do we think about the Duke -- so 2-part question, I guess, on the Duke arrangement. One is just the modeling of that. Are you going to be recording the revenue on the full truck plus the battery price? Or is there 2 payments that UPS, for example, would be making? One is for the upfront purchase and then an ongoing lease that you're not affiliated with. It was just unclear how we should think about the unit price of the trucks you're delivering to UPS as part of that arrangement.

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

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Thank you, Jeff. This is Paul Gaitan, the CFO. Yes, it would be, from the Workhorse perspective, a straight full sale, so Duke acting as the lessor. And so the asset completely goes off of our books, and it would be just like it's getting sold to UPS. Duke then takes that role as a lessor and manages the longer-term cash inflows.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4]

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Got it. Okay. That should certainly help as that plays out. Can you talk about how the Marathon financing, coupled with the Duke arrangement, like when do you expect the first distribution center to be upgraded with that program?

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

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This is Duane, Jeff. Again, like Paul said, thanks for asking the questions and participating today. Yes, I do -- and again, I'm speaking on behalf of our clients like UPS. I'll be very guarded here, but it's my understanding that this month, there is a kickoff meeting somewhere in Florida. I'm not specific to the location, if you will, but there will be a kickoff meeting to initiate the depot-wide electrification for that particular facility. That will include, of course, the opportunity for all the packaged cars and beyond.

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Paul Gaitan, Workhorse Group Inc. - CFO [6]

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And then, Jeff, I'll answer the other part of your question about the Marathon credit facility. It's really kind of unique, and it works in our favor. So when we present confirmed purchase orders from customers like UPS, we are able to draw on the full price of the vehicle. So in essence, we're getting paid for the profit, the operating expenses, labor overhead, not just material as it would be in a conventional vendor PO financing arrangement.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [7]

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Got it. No, that's helpful. And then just going back to the warranty issue in the fourth quarter. Has there been any change in scope of what you're doing in Ohio as it relates to assembly of battery packs? Is that something that you either have started outsourcing, or are you doing that yourself and changed procedures? Or was it actually not a pack assembly issue and something at the cell level? It's just unclear to me, following the last call, where the actual root cause was of the problem.

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

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Jeff, this is Duane, and I may throw it over to Rob because he can speak to the details of it, but yes, there's a couple things happening. We have made changes to not only the manufacturing and assembly process but also to the suppliers of the raw materials that ultimately make up our final pack. We started on that process even before the fourth quarter just from the normal reasons of always looking for ways to engineer out costs associated to total truck production. But to your point, as the warranty issue popped its head, a lot of the changes we were making, we, I'll say, expedited. So that as we were continuing to fix the existing trucks, we also have built a brand-new, if you will, design and engineered a new battery pack strategy going forward for the N-GEN program and beyond that we have a lot of confidence in, in terms of improving the -- not just the performance but the ability to not see these types of issues recur. Does that make sense?

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [9]

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Certainly does. That's helpful. And then is there any more granularity you can provide just about the sort of second half of the year? I'd assume, based on what was stated before around still testing and validation, that the second quarter results will likely be fairly similar to the first quarter, especially given that Duke is still being spec-ed out, if you will. But as you think about the third and the fourth quarter, how do we think about the trajectory of you delivering against the backlog that you have with some of your key partners?

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Duane Hughes, Workhorse Group Inc. - CEO [10]

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Okay. Good question and appreciated. We're looking at actually initiating full production in Q4. Of course, we have our Marathon covenants and so on that also, I'll say, give us a particular level of discipline to make sure that we get there. The way we're marking our path forward is we do have a couple of vehicles that are in testing today. We expect 2 more vehicles somewhere around the end of summer that will continue through testing and regulatory, so that we are prepared for full production mode going into the fourth quarter. And by the end of the fourth quarter, we will be ramped up to where we can maintain a consistent flow of deliveries on a routine basis throughout 2020 and beyond.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [11]

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Got it. And then the last question I had, just in light of the Q4 ramp, should we think about the OpEx level in Q2 and Q3 being similar to what we just saw? Or is there more room to run in terms of reducing that now that some of the prototyping has been finished as well as it sounds like HorseFly has been scaled back maybe, or SureFly, I'm sorry?

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Paul Gaitan, Workhorse Group Inc. - CFO [12]

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Yes, this is Paul Gaitan, the CFO. No problem. Yes, we expect, in general, the operating expense to be pretty flat. The one notable exception will be for the certification and testing of the vehicle. Other than that, we do not expect any significant change in personnel or SG&A, for example. Really just certification related to the vehicle.

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

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But as you alluded to earlier, you talked a little bit about SureFly. We do anticipate finding the partner in SureFly, so that we are looking at a reduction and -- small relative to the overall scheme but a reduction.

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Paul Gaitan, Workhorse Group Inc. - CFO [14]

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Correct, that will help on our burn rate probably about 15% improvement there.

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Operator [15]

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Our next question is coming from Michael Brcic from National Securities.

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Michael Brcic, National Securities Corporation - SVP of Investments [16]

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I just want to go into the rollout of the N-GEN, let's say, with UPS or whatever, what their plans are. You talked about the electrification of the facility. How do I -- I assume they're going to roll it out one facility at a time. And what percentage of the vehicles at their facility is supposed to be EVs as opposed to traditional? Do you have any color on that?

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

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Not a ton of color. What I would say is historically, at least with Workhorse and our rollout of vehicles with those types of fleets, they typically spread them across many different depots for multiple reasons. One is to allow the adoption of these vehicles to be accepted by a wider group of their fleet managers and drivers across the country. Of course, when you're a fleet with this size where you have vehicles in every city and every state, you want those guys to get familiar with, begin the training process and use the vehicles that are in place to start training many different drivers, okay? There's also the ergonomics and other issues associated to that. So commonly, on any given order, the fleet customer will have identified the number of depots or locations that they plan to deliver them to based on x number per location, again, to accommodate all those things we just talked about.

Given that we're looking at, if you will, depot-wide electrification, that's more, in my mind, a long-term support goal of saying each time a fleet introduces electric vehicles into their depot, they typically are limited to the number of vehicles they can put in any given depot because the electrification needs aren't in place to support depot-wide electrification. I would say that the indication here is that as electrification becomes more prominent and more a reality, now they're looking into how do we prepare for our future where the vast majority, if not all, of the vehicles in the depot will be electrified even if we spread it across many depots across the country as we populate them. Make sense?

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Michael Brcic, National Securities Corporation - SVP of Investments [18]

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Yes. Now I read recently Amazon -- got some news about them using drones, et cetera. How does that impact you guys, if at all?

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Duane Hughes, Workhorse Group Inc. - CEO [19]

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That's a good question also, Michael. I would say, in general, drones, over the last few years, have been seen, in some ways, as a little bit of a science project and in other ways as how in the world does all of this drone technology going to come together and work. Anyone who is demonstrating any type of performance or proof of performance in the drone world is similar to how we approached demonstrating proof of performance in our truck world, right? We differentiate our drone technology by being integrated with a delivery truck because, on any given day, you have all kinds of interferences, I'll call them, with the possibility of delivering drive-by drone. So for example, UPS is out on the road every day making package deliveries. If they were to go dependent upon drones to get that done and there is a bad storm where you can't fly that day, they still need the ability to deliver those packages. So our approach to the drone side of the technology integrated with the vehicle platform is to, if you will, supplement what the driver is doing today, not replace that driver, but ultimately provide stronger economics so that our fleet customer can be more effective in their mission.

The other thing I would talk about is, something to this effect is how I would phrase it is how you can imagine the number of gas and diesel vehicles that are going up and down our city streets every day, delivering packages to our houses with kids riding around on their bikes and big wheels and so on. So if we can help by using drone technology to, I'll say, reduce the number of trucks or the number of miles those trucks are driving, we're actually offering a safer alternative as to this polluting vehicle driving up and down the streets at the risk of harm, I'll say. Ultimately, we view that Horsefly-integrated drone technology and the patent we have with our trucks as an advantage to us to helping us sell more trucks. It's not as much about just the drone technology and trying to sell drones for package delivery as it is to support our core truck business.

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Michael Brcic, National Securities Corporation - SVP of Investments [20]

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Right. Have you -- I've seen the video, and it's impressive, et cetera. But have you done the studies of do the drones on your trucks actually make a typical delivery more efficient? Or does it just take more time than a traditional delivery?

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Duane Hughes, Workhorse Group Inc. - CEO [21]

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That's a great question, and here's what I would tell you is we've done a lot of real-life analysis along with third-party people involved in the analysis where we have done -- for example, most recently, we did a delivery program over a 3-month period with the City of Loveland, Ohio and the FAA where we were delivering as many as 5 packages a day every day to gather the data and the analytics that you're talking about in terms of understanding what the model is.

In our world, again, the idea here is to help reduce the number of miles we're dragging a 20,000-pound truck around to do delivery. So to part of your question, let me give you this. A gasoline vehicle today is basically -- between fuel and maintenance alone costs about $1 per mile, again, in fuel and maintenance, to do a delivery. A electric truck that we deliver is in that $0.40 or just below $0.40 range and going further down with the N-GEN platform. And the drone technology, because it's leaving a truck doing a short distance, something less than 2 or 3 miles and back to the truck, we're able to perform that at less than $0.04 per mile. So financially or economically speaking, the drone is a much more economically -- is a better economic vehicle for that delivery process. But again, ultimately, the idea here is to supplement what the driver is doing, not necessarily replace that driver to allow for ultimately more efficient deliveries overall.

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Michael Brcic, National Securities Corporation - SVP of Investments [22]

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Got it. Finally, with the drones, do you need FAA licensing? And does it cover a certain region? Do you have to -- I assume you don't have to file to be an airline. But how does that work with the FAA and the amount of drones entering the sky?

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Duane Hughes, Workhorse Group Inc. - CEO [23]

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Great question. So I would tell you that first is, yes, you have to have regulatory approvals, much like you do in the automotive or the truck world, to put vehicles in the air and fly. Those rules were originally introduced -- I think it was either late '16 or '17 when the FAA first made the use of drones for commercial purposes actually legal in the U.S. Prior to that, any enthusiast could get a drone under their tree, Christmas tree, go out and fly it under certain rules, but who was dictating what those rules were and making sure those rules were followed, for example, flying a drone above 400 feet?

Following that, the FAA, they then created a set of rules, which included line of sight, not flying over people and no fly zones and so on, which then made the use of drones for commercial purposes legal in the U.S. We -- again, by that program I talked about where we delivered every day for a 3-month period with the FAA and with the City of Loveland, we continued to go through the appropriate processes to make sure that we are FAA-compliant with the way we go about our drone deliveries. We handle that -- we are -- I'll say we are differentiated by leaving a truck to do a delivery where we can stay within line of sight and things such as that to, I'll say, make the FAA comfortable that we have a safe and effective approach to the use of drones.

You can imagine, and I think you mentioned becoming an airline, it was in the news recently, that Google actually received their, I'm going to call it their airline worthiness, airworthiness, to fly their drones for delivery purposes. Because you can imagine, they may be leaving a single warehouse location, perhaps flying as many as 20, 30, 40 miles and having to return to that location to do another delivery. So our differentiator here by having the patent for truck-launched integrated drones gives us the ability to achieve some of the FAA regulatory -- or overcome some of the FAA regulatory challenges that you would otherwise have if you were leaving a warehouse.

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Operator [24]

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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@gatewayir.com.

I'd now like to turn the call back to Mr. Hughes for his closing remarks.

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Duane Hughes, Workhorse Group Inc. - CEO [25]

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Thank you, Kevin. We really appreciate you guys participating in our call today, the number of questions, the valid questions that you asked, and we look forward to giving you further updates in the future. And I especially want to thank our employees, our partners and investors for their continued support, and look forward to our next call. And any questions in the meantime, feel free to reach out to the company. Thank you very much.

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Operator [26]

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Thank you for joining us today for Workhorse Group's First Quarter 2019 Earnings Conference Call. You may now disconnect.