Ladies and gentlemen, greetings, and welcome to Workhorse Group's Second Quarter 2021 Investor Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Workhorse Group's Vice President of Finance, Tony Furey. Sir, you may begin.

Thank you, operator, and good morning, everyone. We appreciate you taking the time to join us for our call. Before the market opened, we issued a press release with our results for the second quarter ended June 30, 2021, a copy of which is in the Investor Relations section of our website. We also released our Form 10-Q this morning. I'm going to turn the call over to our CEO, Rick Dauch, in a few moments, and Rick will give you an update on our business. After that, our CFO, Steve Schrader, will walk us through the financial results for the quarter. But before we begin, I want to call to your attention our safe harbor provision for forward-looking statements that is posted on our website and is part of our quarterly 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 2020 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 CEO, Rick Dauch. Rick?

Thanks, Tony, and thank you to all who are joining us for today's call. Let me start off by thanking our Board of Directors for giving me the opportunity to lead the Workhorse team as we take the next step in our journey from tech start-up to a real-world operating company. I'd also like to thank my predecessor, Duane Hughes, for his leadership of the company over the past two-plus years and his outstanding support of me during our transition process. As most of you know, while I'm new to Workhorse, I am not new to the automotive industry, specifically EV technology for the last-mile commercial vehicle delivery space. My first day here at Workhorse was August 2. And as you can see on Slide 1, it has been a very busy week. In the past seven days, we have conducted Board meetings, held three town hall events with our workforce, two at our Union City factory; taking test drives in two of our delivery vehicles that are just like the one you can see on Slide 2; I've witnessed drone package delivery test fleets; I've interviewed the entire executive leadership team; held introductory calls with our key customers and laid out a plan for me to get fully oriented to the company by the fourth quarter of this year. I have also secured housing and moved to downtown Cincinnati. What I have seen, heard, and experienced in the last week confirms exactly why I decided to get off the bench and join the Workhorse team. With that said, please turn your attention to Slide 3. As you can see, we are the clear technology leaders in the Class 3 to 5 last-mile delivery segment, both for electrified vehicles and drones. Our backlog is real and stands today at nearly 8,000 vehicle orders that are confirmed with standard vehicle purchase agreements, which include typical terms and conditions. Slides 4 and 5 show our Metron data, that we have 381 vehicles on the road and in the hands of our customers operating in 21 states with over 8 million miles of real-world driving experience. Metron can provide a multitude of operating data both to us and our customers that allows us to gain data and provide users with increased vehicle efficiency. Most importantly, we have a capable team of associates, from the C-suite to the plant floor, who are dedicated and focused on becoming the unquestioned market leader in the last-mile delivery truck and aerospace markets. That being said, we need to overcome some growing pains as we make the transition from a tech start-up to a full-blown operating company. We have a lot of work to do around vehicle designs, bill of material costs, and efficient lean manufacturing operations, areas where I've spent most of my career over the past three decades. I'm excited to be here and look forward to digging in and learning more about our company. Let me now provide a few quick updates on our business units. Let me turn to our truck business first, where we have made significant improvements in our production process. Year-to-date, we have produced over 133 vehicles, both for our own use as a test fleet and for select customers. 14 of those trucks were delivered in the second quarter, and we anticipate the remainder to be leased or sold to niche markets within the next 12 months. In building these vehicles, we learned valuable lessons about what we can do to make our C1000 series vehicles easier to produce and provide even better value for our customers. Our initial production run has confirmed the excitement in the market for our C1000 product, which we have shown to existing customers and dealers and are beginning to deliver in limited quantities. What is clear from initial customer feedback is that we need to further increase the payload capacity of our vehicles. Although there are niche market opportunities for the lower payload vehicle, those opportunities are limited. The majority of our customers need a higher payload vehicle, which serves a much larger market segment. Our engineering teams are already hard at work on the revised design of the C1000. Meanwhile, we can continue with a limited level of production for customers where our current payload is adequate for those who want to road test one of the few, if not the only, electrically powered commercial vehicles in our market that are available to them now. As I said earlier, Workhorse is making the transition from an advanced technology startup to a leading manufacturer of last-mile delivery vehicles, and that is not always an easy journey. I've been through many manufacturing transitions in the past, and I know what it takes to be successful. We recognize that there is a lot of work still to be done and likely difficult decisions ahead to position our company for long-term success. I look forward to working with our team, our valued customers and industry partners as we take Workhorse into the next phase of vehicle development and production planning. We will have a revised business and operating plan for our commercial vehicle business by the next earnings call. Let me provide a quick sales and marketing update. We have nearly 8,000 confirmed orders with customers, most of whom I spoke with last week. Thankfully, they are being quite patient with us as we work through our internal design and production challenges. We continue to receive significant customer and market interest due to the recent purpose-built tour and the personal efforts of the entire Pritchard family group enterprise in making that cross-country campaign such a success. Taking full advantage of the increased interest generated, we will be launching a rebranding campaign this quarter, which will include a new website, additional show trucks that will make their way across numerous high-visibility events throughout 2021, as well as unveiling our customer experience and training center right next to our manufacturing facility in Union City, Indiana. Turning to Slide 6, our aerospace team has had a lot to do this quarter, and I have a lot of work ahead of me to better understand both the technical and commercial potential of our industry-leading drone delivery technologies. Our goal is to develop a system that safely and reliably carries a meaningful payload a significant distance and then certifies that system under FAA's regulations. We are making progress down that design path. Our team is routinely in the field conducting test flights to validate our designs, and those tests are going quite well. This quarter, our aircraft demonstrated the endurance we need and the ability to fly multiple sorties in quick succession. Safe, reliable flying, adequate endurance on a flight, and the ability to fly many times in the duty day are the key elements of any system that supports commercial package delivery service. In the second quarter, we flew our system more than 20 missions in the duty day, validating our design and our ability to hit the operational tempos the market will demand. Our work with the FAA is moving forward. The FAA has assigned us a project manager and a team of subject matter experts to work with on the certification process. There is new FAA guidance, which may stretch certification for some systems in the pipeline, including ours. From our point of view, the FAA is working hard to strike a healthy balance between public safety and the fielding of new technologies as quickly as possible. With that, I'll turn the call over to our CFO, Steve Schrader, to discuss our second quarter financial results. Steve?

Thanks, Rick, and welcome aboard. Sales for the second quarter of 2021 were recorded at $1.2 million compared with $92,000 in the second quarter of 2020. The increase in sales was primarily related to an increase in truck deliveries. There was a total of 14 trucks delivered in this quarter compared to 1 in the same period last year. Cost of goods sold increased to $14.8 million in the second quarter of 2021 compared to $1.5 million in the second quarter of 2020. The increase in cost of goods sold was primarily related to an increase in the volume of trucks shipped, a write-down of work in progress and finished goods inventory to market value and an increase in employee, consulting, manufacturing overhead, and freight costs. Selling, general and administrative expenses increased to $7 million from $3.9 million in the same period last year. The increase was attributable to an increase in employee, consulting, legal, and marketing expenses. Research and development expenses increased to $2.1 million from $1.6 million in the same period last year. The increase in R&D expenses was due to employee and contract labor issues. Other losses increased to $11.7 million from no loss in the second quarter of 2020. The other loss was primarily related to the reduction in the fair market value of the investment in RIDE, the SPAC owner of Lordstown Motor Corporation. This loss is non-cash and is determined by the stock price of RIDE as of June 30, 2021, which is $11.06 versus a price of $11.77 as of March 31, 2021. There is no change in value during the same period in 2020. Net interest expense decreased to $10.5 million in the second quarter compared to $124.3 million from the same period last year. The decrease in interest expense was primarily related to the non-cash mark-to-market adjustments related to the convertible debt instruments and warrants in effect during these periods. The net loss in Q2 of 2021 was $43.6 million compared with a net loss of $131.3 million in the second quarter of 2020. Excluding the non-cash adjustments, the operating loss for this quarter was $22.7 million compared to $7 million in the same period last year. As of June 30, we had approximately $156.6 million in cash on our balance sheet. However, we have since sold 72% of our RIDE ownership shares and are expecting net proceeds of nearly $79 million. That concludes my financial overview. I'll now turn the call back over to conclude the call. Rick?

Thanks, Steve. I'm excited to be here at Workhorse. We are the technology leaders and have a great opportunity to build a profitable company over the next 24 to 36 months. Being a technology pioneer is not an easy path. We readily admit that we have numerous challenges to overcome, but I am confident that we have the team, the product technology, and we'll soon have an operating plan and commercial plan that we can execute to be successful. Let's go to work. So operator, please provide the appropriate instructions.

Thank you. We’ll now be conducting a question-and-answer session. Our first question comes from Colin Rusch with Oppenheimer. Please proceed with your question.

Thanks so much, guys. Could you give us a better sense of what you're going to be working on with this redesign and what the cycle time is going to be on completing those designs and getting into production? I would really love to understand any technical elements that you guys are working on.

Yes, Colin. I've only been here a week, but I've done a lot of diligence before I got here. And obviously, I've spent time with the team, both at the factory in Union City and with the engineering team. We have set up the week of August 16, we're going to go through full vehicle design reviews, down to the bill of materials, with both our engineering team and our purchasing team. It seems to me at a high level right now we have zero issues with our electronic and electric powertrain systems. Our vehicles in the field and the vehicles we built are meeting the 100-mile range that is required for about 96% of the vehicles in the commercial vehicle space. We have the ability to flex up to 150 miles if we add two more battery packs. The majority of our issues are around vehicle dynamics, chassis systems, and payload. I won't go into those details today; I'd ask for your patience. Give me 90 days, and we'll come back with a detailed plan. The good news, at least from an outsider looking in, and now a week of being an insider, is those vehicle dynamic issues are all solvable. We have to get the right engineers working on the right issues and then get the right suppliers to help us. I would say this team has done a great job putting together those designs; we need to do a better job of involving our supplier partners who are the experts in some of the subsystems. If we do that correctly, I believe we can be out to market with a very good vehicle soon.

That’s super helpful. And then just as you roll these trucks out into the field and monitor them, in terms of the learning cycles, what are you seeing early days in terms of your ability to integrate those learnings quickly into the operating system and how the vehicles actually perform out in the field?

Yes. One of the things I was excited about as part of my diligence and now that I've been here is the Metron system we have can track real-time where our vehicles are operating anywhere in the country. We get an update every 10 seconds on about 500 different data points. So now I haven't spent time digging through that. That's one of the things I want to do in the next 30 days with the engineering team and the sales team. I plan to figure out what the data is telling us and how we can take that data and present it back to the design team to create a better vehicle.

Okay. Thanks so much, guys.

Thanks, Colin.

Thank you. Our next question comes from Greg Lewis with BTIG. Please proceed with your question.

Yes. Thank you, and good morning, everybody. Rick, realizing that this announcement on the redesign and the payload just happened, I guess I'm curious, was this something that was being discussed before you came on board? And as we think about that, I mean, I imagine it was clearly customer-driven. Is that leading to any shifts into, as we think about the existing backlog primarily being for the C650 and the C1000 as is, does that kind of morph into maybe what we call a C1000 C10000 plus?

Great question. Some of these issues I found out about as part of my diligence. My diligence basically was meeting with some of the Board members. I actually sat down with Duane for a two- or three-hour meeting before I took the job. So these things are issues that our team knew about long before I got here. Here's what I'd say: I've got to dig through all the different types of vehicles we have right now, whether it's the 650, the M-Series, or 1000 series. We're going to take a look at what we have in store here from a raw material standpoint, what we can build efficiently at Union City, and then talk to our customers about where, if we build vehicles, they can take them and deploy them in the field. I had a tremendous call on Saturday with one of our largest customers. He applauded us in slowing down our production. He much preferred that we get the vehicle right. That being said, he'd be happy to take some of these lower payload vehicles and get them out in the field for certain applications. Whether it's maintenance tools, bread delivery, or donuts, whatever it's going to be, and get the vehicles out there so customers experience what it's like to drive an EV. In the last three years, between Delphi and here, I always go to these town halls and meetups, I ask the crowd, 'How many of you have an electric vehicle?' Less than 5% of the people have it. It’s even less in the commercial vehicle space. But once people get an electric vehicle and they feel the power of it and how quiet it is, they like it. Last Wednesday at Union City, I got to take a 15- to 20-mile test drive in one of our vehicles, one of the C1000s, and I was really impressed. I was strapped in with the seatbelt, and we went through corn and soybean fields, and I was really impressed with how the vehicle handled and tackled bumps and railroad tracks, etc. So we have to get some of those vehicles in the hands of customers. When they see it, they can bring that vehicle back to station and charge it overnight. It's going to be a good solution and revolutionize the delivery market.

Okay, great. Thank you for that. And then, Steve, just pivoting over to you, realizing that it sounds like we probably don't have much color until next week when you go through the vehicle redesign, but do you have any insight into how we should be thinking about the cash run rate on a quarterly basis? Let's just think about the next maybe Q4 rate.

Greg, sure. So right now, I think you saw we had $156 million of cash on the balance sheet on June 30. We've monetized 72% of the RIDE ownership, which gives us almost another $80 million of cash and more to come on that. So I think we're pretty good from a cash standpoint. I would look at it as maybe $10 million a month, $30 million a quarter as kind of the cash burn. So I think we've got a pretty good runway in front of us.

Okay, great. Thank you for the time, everybody.

Thanks, Greg.

Thanks, Greg.

Thank you. Our next question comes from Jeff Osborne with Cowen & Company. Please proceed with your question.

Hey, good morning, everybody. A couple of questions on my end. One, Rick, I was curious about your views on automation and throughput, recognizing that you're experiencing this redesign process. But in general, the level of automation in Union City, is that something that you would want to step up as part of the redesign effort or not necessarily?

Too early to tell, Jeff, I'd say. My experience at a previous company where I was on the Board, automation wasn't a big issue for us. Typically, I like to use automation where there are safety issues involved, especially with heavy parts, or there's redundancy. But the build rates on these vehicles aren't typical like you're in the automotive side of the house. Right now, we're only building about two or three a day, up to five a day. I think we know our target down the road will be much higher than that, and we probably have some time to lay out the factory. I was impressed by the factory, not its outward appearance, it needs some enhancement, but inside, we have a lot of capacity in terms of layouts for stations. We can have two assembly lines and probably restructure to a two-assembly line process. Right now, it's a one-shift operation. As sales grow, we can always move to two shifts. We'll bring more details on that to you in the fourth quarter and probably update it every quarter as the market develops.

That’s great. And my follow-up question is just around internal sourcing or internal development, vertical integration around battery packs and other things. Is that something you intend to do? And can you just touch on batteries in general?

Yes, too early to tell. I know we have a partnership with CATL, I think, C-A-T-L, out of China, and we have EnerDel. We have two types of batteries. I've seen them on the floor, where we charge them and keep them warm. We're going to look back at what I call make-versus-buy decisions—what can we do in-house most cost-effectively, what should stay out at suppliers, and how we manage our inventory? As you know, if you know me, I'm a big believer in the Toyota production system. We've won multiple awards at my plants before, and we'll use that same system here when it's applicable.

Our next question comes from Craig Irwin with ROTH Capital Partners. Please proceed with your question.

Rick, I wanted to ask if you could frame out for us your experience in federal procurement. If you could maybe follow through on that with how your experience is relevant to serving a customer like the post office. Is there anything philosophically that you might do differently than the team did over the last couple of years looking to serve that customer? Do you sort of endorse the strategy the way you see it at this point?

You asked about the federal procurement experience? Is that what you said?

Federal procurement, post office, and the move to litigate and work on a regulatory solution rather than the traditional channel.

Yes. We're not going to make any comments today about the USPS lawsuit; let me just make that statement. I have had limited experience. We did some work when I was at Accuride, working with the Department of Defense on some advanced technology. There's a combination; you have to understand the right channel and the sourcing process and specification process. Two, you have to work through the different budget cycles of the federal government, which happens every year, and all the dynamics that go along with that, between Democrats and Republicans. Let me take a look at that with the team. At the end of the day, this administration has talked about upgrading our infrastructure, which you can read about in the paper; there's a move towards electrification. What I've seen, both in Europe at Delphi and here in North America, is a huge shift driven by the government. In China, 25% of vehicles will be electrified. Every major city in Europe is driving towards electrification. So how are you going to service all the pubs in downtown London or Paris and those places if you can’t bring a combustion engine there? So there’s going to be a market for us. Here in North America, obviously, California is leading the way. So we have to make sure we understand all those policies first here and be ready to go. To answer your question, I have a lot of work to do here at this company. I need to understand what happened with the USPS. I read everything and talked to the Board members about that, and we'll make decisions in the next quarter.

For my follow-up, is the payload issues you're moving proactively to solve on your trucks? Can you clarify if this impacts all of the vehicles in the lineup, the C450, the C800, and C1000, or is there a possibility of a more aggressive move on the C450 side given the payload differences of last-mile delivery versus the people that need 1,000 cubic foot of capacity?

Yes, Craig, let me dig into more details. Like I said, I've only been here a week; please give me a little time. I think primarily, the focus is around the C1000. It's something we can work on. I'm not going to go into too many details right now. But I'll provide more details by the time we come out in November with our revised plan.

Our next question comes from Chris Souther with B. Riley. Please proceed with your question.

Maybe just to clarify, is the design changes something you expect to have completed by the time you provide the updated timeline and road map on the next earnings call?

Yes. I'll know a lot more, Chris, after I do the design reviews with the team on the 16th, 17th, and 18th. I'm sure that will lead to a whole bunch of more questions. I can't commit to having all the design plans specifically buttoned down by November, but we'll have a general direction where we want to move. That will drive design finalization and sourcing with customers when they have their parts fully validated and sourced. We also have to time that with when we want to launch production in a big way in 2022. So we'll give you the best we can by November; I won’t commit to 100% completion then.

Of the 8,000 purchase orders, how many do you think are good with the current specs and would move forward in interim production versus waiting? It sounded like one of the big customers was fine waiting for the most part and taking small volumes. I'm just curious about the mix of customers that have already ordered and are okay with the current specs here.

Yes. I don’t know the details of the 8,000. The good news is, one of those customers I talked to last week was ready to place another order of 1,500 to 2,000 units, and I told them to hold off for now. Let's get the designs right; let's get our production right. Then we'll come back and tell you when we're ready to make those orders. I don’t know exactly how many orders came in during the second quarter, but I know there's demand, and the market is growing. So it's really a race to get the right vehicle that meets the customer specs. As I said, 96% of vehicles for last-mile delivery for Class 3, 4, and 5 only travel less than 100 miles a day. The more they go out to 120 or 150 miles, we can handle that with our powertrain. I'm sure we'll have to tweak some technology in cold weather environments when it’s very cold in Canada or the Northeast. I don't know enough about the technology, but we'll get there. I'm confident about that.

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 [email protected]. I'd now like to turn the call back over to Mr. Dauch for closing comments.

Thanks for joining us on today's call. I especially want to thank our employees, our business partners, and our investors for their continued support of Workhorse. We appreciate your interest in Workhorse, and I look forward to updating you on our next call. Operator, that ends our call. Thank you.

Thank you for joining us today for Workhorse Group's second quarter 2021 earnings conference call. You may now disconnect.