Earnings Call Transcript - WKHS Q2 2025

Operator, Operator

Greetings, and welcome to the Workhorse Group and Motiv joint conference call. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Stan March from Workhorse. Please go ahead, Stan.

Stan March, Host

Thank you, Kevin. Good morning, and welcome to the joint Workhorse Motiv Conference Call. Before we start, I want to mention that we released our financial results for the quarter ended June 30, 2025, through a press release and filed the associated 10-Q with the SEC last Friday, August 15. We also announced the definitive agreement between Workhorse and Motiv in a press release and SEC Form 8-K on the same day. You can access these documents along with the presentation that will guide today's discussion in the Investor Relations section of our website. We will refer to that presentation throughout the call. On Slide 2, you’ll find our legal disclaimer as some comments made today are forward-looking and come with certain provisions, risks, and uncertainties. Additionally, since we will be filing a proxy soon, other relevant notices are included in this disclaimer. Slide 3 lists today’s call participants, which include Rick Dauch, our CEO; Bob Ginnan, our CFO; and Scott Griffith, CEO of Motiv. On Slide 4, you’ll see our agenda for today’s call. After my opening remarks, I’ll turn the floor over to Rick for an update on our Q2 performance and business developments. Bob will follow with our Q2 financial results, and then Rick will provide an overview of the merger. After those comments, Scott will outline the reasons and motivations behind creating a leading North American medium-duty electric truck OEM. Finally, Rick will wrap up by discussing the companies' near-term priorities before we open the floor to questions. With that introduction, I will now hand it over to Rick.

Richard Dauch, CEO

Thanks, Stan, and thanks, everyone, for joining us on the call this morning. We are excited to dive deeper into our recently announced strategic combination with Motiv as well as discuss our strong second quarter earnings results. I'm pleased to have Scott Griffith, the CEO of Motiv here with us today, who will help unpack some details about the strategic transaction and share more about what this holds for the future of both Workhorse and Motiv. First, we'll start with Workhorse's second quarter 2025 results. Let's look at Slide 5. In the second quarter, we secured 36 purchase orders for our W56 step vans, shipping a record 32 trucks in the quarter. These record results are a testament to the hard work and dedication of the Workhorse team and were driven by the proven operating performance of our W56 line of vehicles and overwhelmingly positive customer feedback on these vehicles from the field. We believe the growing demand we see for our W56 further demonstrates the critical role Workhorse plays in the emerging transition to EV technology in the commercial vehicle space and last mile delivery space as well as the market's recognition of the quality, value, dependability and durability of our vehicles. The capability and reputation of our vehicles are being validated every day in the field and will continue to accelerate as more of our vehicles hit the road. There are currently more than 60 W56 vehicles operating in customer and partner fleets across the country along diverse real-world routes. Additionally, we continue to advance our product plans to broaden the W56 application options. This work included the completion of final durability testing under the 140-kilowatt design with a range of 100 miles, which is slated to go into production in early 2026. We also included development and integration efforts to install the Utilimaster Aeromaster walk-in van body on the W56 chassis, now available for order. This familiar, time-tested body design adds flexibility to the all-electric W56 chassis platform, delivering this proven performance in the traditional step van form and configurations that many fleet operators know and trust. We continue to operate efficiently, extending the company's financial runway, enabling us to reach our strategic transaction with Motiv last week. This is reflected in the decrease in operating expenses by $7 million year-over-year while shipping a record number of vehicles in the quarter. Our near-term liquidity was further bolstered by the interim funding from Motiv's controlling investor, totaling approximately $25 million through the sale leaseback and a secured convertible note financing transaction that we closed on last week. This funding will be partially utilized to pay down debt owed to Workhorse's existing senior secured lender and to finance operations through the close of the transaction. With that, I'd like to turn it over to Bob to provide additional color on our financial performance for the second quarter.

Robert Ginnan, CFO

Thanks, Rick. In the second quarter, Workhorse saw significant year-over-year improvement across almost every operating metric. Let me start by comparing some straightforward numbers, truck shipments. In the second quarter of 2024, we shipped 1 truck compared to this year's second quarter when we shipped 32, an increase of 31 trucks during the year. In fact, in the first half of 2025, we have shipped 35 trucks, which is more trucks than we did in all of 2024, which was 29. This shipment unit difference was driven almost exclusively by customer demand for the W56 step van. Turning to Slide 6. Sales net of returns and allowances for the second quarter of 2025 were $5.7 million compared to $800,000 in the same period last year. A $4.8 million increase was due to higher W56 shipments in the current period, partially offset by the loss of revenue due to the Aero divestiture and higher W4 CC sales in the prior year. Cost of sales for the second quarter of 2025 was $13.1 million, an increase of $5.8 million compared to $7.3 million in the prior year. The cost of sales increase was primarily driven by unit cost increases from higher sales volume and an increase in inventory excess and obsolescence reserves of $1.8 million, which was partially offset by lower production expenses of $1.2 million and lower direct and indirect labor costs of $200,000, primarily due to lower headcount. Selling, general and administrative expense in the second quarter of 2025 was $5.8 million, a decrease of $6.3 million compared to $12.1 million in the prior year. The decrease in SG&A expense was primarily driven by a $3.1 million decrease in employee compensation-related expenses, primarily due to lower equity compensation and lower headcount. The decrease in legal and professional expenses of $1.1 million, a decrease in IT-related expenses of $400,000; lower corporate insurance of $500,000; and a $200,000 decrease in depreciation and amortization expense due to the Aero divestiture. Research and development expenses during the second quarter of 2025 were $1.2 million, a decrease of $700,000 compared to $2 million in the prior year. The decrease in R&D expense was primarily driven by a $100,000 decrease in employee compensation-related expenses due to lower headcount, a $300,000 decrease in prototype part expenses and a $300,000 decrease in rent expenses as well as depreciation and amortization expense. Looking at these same key parameters for revenue and operating costs for the first half of 2024 and 2025, sales net of returns and allowances for the first half of 2025 and 2024 were $6.3 million and $2.2 million, respectively. For the 6 months ended June 30, 2025, the increase in sales of $4.1 million was primarily due to the increased delivery of W56 trucks. Cost of sales for the first half of 2025 and 2024 were $18.2 million and $14.7 million, respectively. The increase of cost of sales of $3.5 million was driven due to the increase in sales volume as well as a $1.3 million increase in warranty reserve expenses which was offset by a $1.6 million decrease in direct and indirect labor costs and a $1.3 million reversal of infrastructure expenses previously accrued. SG&A expenses during the first 6 months of '25 and 2024 were $12.6 million and $26.2 million, respectively. The decrease in SG&A of $13.6 million was primarily driven by a $7.2 million decrease in employee compensation and related expenses due to lower headcount and equity compensation, a decrease of $1.8 million in consulting-related expenses, a decrease in legal and professional expenses of $1.9 million, a decrease of $1.1 million in insurance expense, a decrease in IT-related expenses of $900,000 and a $300,000 decrease in depreciation and amortization expense due to the Aero divestiture. Research and development expenses during the first 6 months of 2025 and 2024 were $2.8 million and $5 million, respectively. The decrease in R&D expense of $2.7 million was primarily driven by the successful completion of the W56 initial design and production of the W56 and the W56 208-inch wheel-based truck program in the prior year. So to summarize, year-over-year revenue and operating costs for the 6 months period, revenue is up $4.1 million, operating expenses were down $16.3 million. Turning back to Q2. Interest expense net for the second quarter of 2025 was $600,000 compared to $2 million in the prior year. The decrease was primarily driven by higher financing fees related to the 2024 notes in the prior year. As of June 30, 2025, the estimated fair value of the 2024 notes totaled $39.5 million. During the 3 months ended June 30, 2025, the institutional investor converted $13.5 million of principal into common stock. The company recorded a $5.4 million fair value net gain on conversion in the condensed consolidated statements of operations. During the 3 months ended June 30, 2025 and 2024, we recorded a $1.6 million fair value net loss and a $3.1 million fair value net loss, respectively, in the consolidated financial statements. As of June 30, 2025, the estimated fair value of outstanding warrants totaled $3.1 million during the 3 months for the second quarter. The company recorded a $1.9 million fair value gain and a $600,000 fair value loss, respectively, relating to outstanding warrants. Overall, net loss for the 6 months ended June 30, 2025, has improved from $55.5 million in 2024 to $35.4 million in 2025. If you factor out the interest in fair value adjustments, the net loss from operations improved from $44.2 million to $27.3 million. Turning to our balance sheet on Slide 7. As of June 30, 2025, the company had $2.2 million of cash and cash equivalents and $22.5 million in restricted cash, accounts receivable of $2.4 million, other receivables of $100,000, inventory net of reserves of $32.8 million and accounts payable of $10.8 million. In connection with the proposed transaction with Motiv, Workhorse completed 2 transactions with entities affiliated with Motiv's controlling investor, including a $20 million sale leaseback for Workhorse's Union City, Indiana manufacturing facility as well as a secured convertible note financing for $5 million, each of which were consummated at the time of the execution of the merger agreement. With that, I'd like to turn it back over to Rick to discuss the mode of transaction, how we arrived here and how the combined company will be well positioned to build on our progress.

Richard Dauch, CEO

Thanks, Bob. As Bob mentioned, on Slide 8, I'm going to touch on our transaction with Motiv and then turn it over to Scott for his perspective on the future prospects of our combined companies. Let me start by taking a moment to reflect back on our journey and highlight how far we've come since I first joined this commercial start-up company about 4 years ago. At the time, Workhorse's path forward was far from clear. Our Union City plant and equipment were old and outdated. Our newly designed Class 4/5 step van was failing both on the test track and in the field. Since then, we have rebuilt the company from the ground up, and into a streamlined, process-driven organization with market segment-leading products with a reputation for reliability, durability and significantly lower Total Cost of Ownership than comparable internal combustion engine vehicles. We accomplished this by advancing our technology roadmap, iterating designs based on direct customer feedback from the field and continuing to invest to expand our product portfolio. As a result, our W56 step van has become the flagship of our portfolio with consistent positive customer feedback, while offering 2 wheelbase options, 2 EV powertrain options and now 3 body configurations. We partnered with proven and technically capable commercial vehicle component suppliers who continue to support our efforts here at Workhorse. At the same time, we built a strong dealer network across the country and built strong relationships with operators in the largest medium-duty fleets, who now know and view the Workhorse brand to be associated with high quality, reliability and integrity, a far cry from 2021. We also invested heavily into our Union City manufacturing facility, turning it into the jewel of the commercial electric vehicle manufacturing segment here in the United States. That said, while we remain optimistic about the long-term transition to commercial EV vehicles, it's true that factors largely outside of our control, like a shifting clinical landscape and changing government regulations and incentives have led to delayed fleet customer adoption rates. Gaining momentum on the revenue side of the equation has taken far longer than expected or forecasted by any OEM, automotive or Wall Street industry analysts. In light of these market conditions and with the support of our financial stakeholders, our Board of Directors and management team evaluated numerous strategic opportunities that best position Workhorse for both the near and long-term future of the company and our stakeholders. Our transaction with Motiv was a result of the strategic guidance from our Board. By combining with Motiv, we are creating a broader commercial truck product portfolio, strengthening our near- and long-term financial positions and providing Workhorse shareholders the opportunity to participate in the upside of a leader in the medium-duty electric commercial vehicle market. The transaction itself has a few pieces, so I want to use this opportunity to break it down. Starting with our transaction that merges Motiv and Workhorse. Under the terms of the transaction, at closing, Motiv will be merged with a newly created subsidiary of Workhorse in exchange for newly issued shares of Workhorse common stock. We have also taken steps that provide near-term liquidity for Workhorse and simplify our capital structure. First, we have completed 2 transactions with entities affiliated with Motiv's controlling investor, a sale leaseback for Workhorse's Union City, Indiana manufacturing facility for $20 million, as well as a $5 million secured note financing. These transactions are expected to provide near-term liquidity to support Workhorse's operations through closing. They also provide us with capital to pay down debt owed to Workhorse's existing senior secured lender. In connection with signing, we entered into an agreement with our senior lender to permit the sale leaseback and convertible note and to provide additional structure around our repayment of obligations. As a result of the agreement at closing the merger, all remaining indebtedness owed to such lender, including all warrants currently held by the lender, will be repaid and canceled. In addition, the lender will receive rights to acquire shares of Workhorse common stock. At the close of the transaction on a fully diluted basis, Motiv's controlling investor initially will own approximately 62.5% of the combined company. Workhorse's existing senior secured lender will have rights to receive common stock that represent approximately 11%, and Workhorse shareholders will own approximately 26.5% of the company. All these ownership stakes are subject to certain potential adjustments and additional future dilution. Looking ahead, we intend to seek additional new financing to fuel go-forward plans. As part of the merger agreement and as a condition of closing, at the completion of the transaction, the combined company is expected to obtain access to up to $20 million in debt financing provided by entities affiliated with Motiv's controlling investor. This includes approximately $10 million expected to be available on a revolving credit facility and an additional $10 million expected to be available to fund manufacturing costs associated with confirmed purchase orders of the combined company in an asset-based lending facility. In addition, the combined company will seek to raise additional funding to finance its go-forward strategic execution plans in 2026 and beyond. The transaction is expected to close in the fourth quarter of 2025, subject to Workhorse shareholder approval and other customary closing conditions, including the debt financing commitment. Turning now to why we believe our shareholders will be poised to benefit from the upside potential of the combined company. From a strategic perspective, we believe that Motiv is the right partner for Workhorse. Together, we are a compelling and complementary fit. The combination of Motiv's diverse product portfolio and top fleet relationships with Workhorse's proven vehicles, manufacturing capabilities and national dealer network creates a strong combined company. Together, we expect to have more scale and the ability to operate more effectively and efficiently. We believe this will enable us to compete more effectively with our industry's pure-play electric and legacy OEMs and capitalize on new opportunities to serve more customers with a more competitive advanced electric product portfolio offering. Moreover, we are establishing a strong financial foundation from which we can advance our combined product roadmap. In addition to the cost synergy we expect to capture, we believe the actions we are taking to strengthen the combined company's financial position will create opportunities for margin expansion and provide greater flexibility to pursue future growth initiatives. With a simplified capital structure, we also believe that the combined company will be better positioned to raise additional capital post-close. Taken together with these actions, we believe we will be well positioned to drive sustainable growth and create long-term shareholder value. With that, I'll turn things over to Scott to share Motiv's perspective on how the combined company will create shareholder value.

Scott Griffith, CEO of Motiv

Thanks, Rick. It's great to be here with you at the Workhorse headquarters in Cincinnati to discuss the compelling combination of our 2 leading OEMs in the medium-duty space. I want to take a step back and provide a more detailed view of Motiv for those of you that may be less familiar with our company. We're a leading manufacturer of medium-duty zero-emission trucks and buses. For more than 15 years, we've partnered with our customers to help them along in their electrification journey, building long-term trusted relationships along the way. I personally served as CEO of Motiv for more than a year, and I'm thrilled to become CEO of the combined company at close. I spent much of my career at the intersection of transportation, technology and sustainability. Prior to joining Motiv, I was CEO of Ford's autonomous vehicles and mobility businesses. For more than a decade, I was CEO at Zipcar, the world's largest car-sharing network from seed stage to a public offering and ultimately through its sale to Avis Budget Group. Between my time at Zipcar and my leadership role at Ford Motor, I served in executive roles at General Catalyst, a leading multibillion-dollar venture and growth stage investment firm. In addition to my work at Motiv, I'm also on the Board of NASDAQ listed EVgo, a leading EV charging infrastructure company. I have great admiration for the talented Workhorse team, the vehicles, and the manufacturing infrastructure your company has built. Now turning back to our slides. As you can see from Slide 9, together, we believe we'll be positioned for success as a leading North American medium-duty electric truck OEM. The transaction joins Motiv's diverse product portfolio and top fleet relationships with Workhorse's proven vehicles, manufacturing capabilities, and national dealer network. This slide covers the highlights of the transaction as well as the combined company's impressive track record of delivering nearly 1,000 total vehicles and the over 17 million real-world miles driven by our vehicles. The combination of Motiv and Workhorse creates a leading medium-duty electric truck OEM. We've developed 8 supporting reasons we believe this provides a platform for future success and future shareholder value creation. One, broad product portfolio targeting an attractive market; two, strong complementary customer base; three, compelling total cost of ownership to accelerate adoption; four, a proven direct sales and dealer network; five, scalable and expandable U.S. manufacturing; sixth, significant synergies; seventh, stronger financial position and simplified capital structure; and finally, strong executive leadership. I won't take the time today to go through all details on all 8 of these key points, but I will focus on point 1, 2, 4, and 7 in the next few slides. In the coming weeks, we'll provide deeper detail on all 8 points. Turning to Slide 10, you'll see that following the close, we'll have a full range of Class 4 through 6 trucks to serve customers. Our leading portfolio will comprise the most advanced and road-tested products and together, we'll charter a product roadmap designed to deliver what our customers want in the future. This includes joint development of a Class 5/6 cab chassis. Importantly, we'll play in the $23 billion medium-duty electric medium-duty truck segment that we believe is poised for continued electrification in the coming years. Both companies believe the next phase of large-scale adoption of medium-duty electric trucks in North America will be driven by national scale commercial fleets with tested and piloted multi-depot EV truck operations, similar to the types of large customers we already support, including Purolator, FedEx, Cintas, Aramark, and others. Turning then to Slide 11, we have a strong and complementary customer base. Together, we've served 10 of the largest medium-duty fleets in North America, positioning the combined company to expand adoption through these existing relationships with the most likely early scalers. We believe there is ample room for cross-selling and increasing new and existing customer contact and confidence as we bring the 2 organizations together. Moving to Slide 12, together, the companies will have significant commercial capabilities as we bring together Motiv's consultative and direct selling methodology and processes for growing from pilots to large multi-order relationships with Workhorse's robust dealer network. Workhorse has 19 dealer locations and is able to sell across all 50 states. Together, we'll be able to increase customer contact and confidence through a much stronger go-to-market strategy. We'll combine Motiv's strong experienced sales team with Workhorse's national dealer network to foster what I call a new team cell approach, with the dealer groups that will allow their sales professionals to participate in the sales process and help them sell more trucks. Turning to Slide 13, Rick touched earlier on the new liquidity this transaction provides to Workhorse to support the company through close, along with debt financing at close and a significant synergy opportunity, which we project to be at least $20 million by the end of 2026. The company will have a stronger financial position and simplified capital structure from which to execute its goals. This will support our ability to drive lower unit costs while optimizing total cost of ownership for our customers. Widespread adoption of medium-duty electric trucks, we believe, will come from achieving cost parity versus internal combustion and diesel trucks and offering compelling long-term value, and this will be a primary focus of the combined company. In summary, we're really excited about this combination. Following the closure of the merger, as one company, we will have more vehicles delivered and more miles on the road than any other medium-duty truck OEM. We'll combine that with world-class engineering talent, a best-in-class supply chain, and a fantastic manufacturing facility in Union City, Indiana. All of this will be commercially powered by top-notch sales leaders and dealers and a proven executive team. We can't wait to get everything we've just told you underway so we can deliver a best-in-class product to our customers and deliver new shareholder value for our investors. With that, Rick, I'll turn it back to you to close this out.

Richard Dauch, CEO

Thanks, Scott. Over the next several months, we will continue to work towards completing our transaction with Motiv, which we expect to occur in the fourth quarter of 2025. As we do that, our focus remains on expanding our product portfolio, including by ensuring reliable fleet operations and customer satisfaction in the field, as well as finalizing plans for the W-56 140-kilowatt production launch in 2026. We will work with the Motiv team on planning to integrate our product road maps and R&D technology, allowing us to hit the ground running once the transaction is completed. We will also continue to strengthen our financial position by fulfilling fleet purchase orders, expanding dealer-led sales, and continuing to convert finished goods inventory into cash. Together, the teams will also begin the planning process for our go-to-market strategy and how we will best optimize operations at deal close. I hope you share our excitement for the future of our combined company and see the significant opportunities ahead to win in the commercial EV transition world. Thanks for joining today's call, and I'll now hand it back over to the operator, Kevin. Thanks.

Operator, Operator

Our first question is coming from Craig Irwin from Roth Capital Partners.

Craig Irwin, Analyst

So this question is really a question for Scott, right? There's different strengths on the Workhorse side and on the Motiv side. But one area where Motiv has kind of invested over the last several years is the market opportunity in New Jersey. You guys have been working with Hudson County Motors for several years now. And those guys in Secaucus earned a pretty interesting place now that the New Jersey Zip is the most attractive funding opportunity in the country. Can you maybe talk a little bit about your history working with Hudson County and the New Jersey Zip so that the investors interested in Workhorse can understand that? And maybe I need to be corrected about Workhorse's history with New Jersey. But can you maybe give us a scope or approximate number of vouchers you've helped clients procure and if you have any in hand? And if there's anything on the Workhorse side or that could maybe be used for the Workhorse side to facilitate the growth over the next couple of years?

Scott Griffith, CEO of Motiv

Thank you for your question, Craig. You raise an excellent point. We have a strong partnership with Hudson County Motors, which we believe will expand. This serves as a good example of how we can build similar relationships in other states. You might be aware that there is an ongoing voucher program, and a new voucher initiative is being developed in nearby states, including New York. We expect this to extend into new areas. Many of these partnerships involve both people movers and box trucks. Therefore, we anticipate continued opportunities through Hudson County and similar relationships. I appreciate your question, as I see this extending into the future. It aligns with the consultative selling approach I mentioned earlier, where we collaborate with both the customer and dealer. The dealer facilitates the delivery and serves the customer in the market. This joint effort with Hudson County exemplifies the model we aim to implement, integrating our direct sales strategy with the dealer network that Workhorse has established. We envision using this approach as we expand nationwide. Thank you once more for your question.

Craig Irwin, Analyst

Great. My second question is for the team. The most important factor for Workhorse has been growth, specifically revenue growth, and the market hasn't been very supportive. We've seen some promising initiatives from the federal government and various state governments, some of which faced false starts, while others provided more support than expected. Can you elaborate on what the combined company looks like in terms of accessing these different programs? Will this make it a more effective target for you? Also, what are your thoughts on growth and continued delivery growth into 2026?

Richard Dauch, CEO

Great questions. There's been significant changes at both the federal and state levels regarding government incentive programs and tax incentives. Last week, CARB republished their new incentive programs for California, restoring Class 5 and 6 type incentives of $85,000 for trucks and up to $165,000 for small business owners. We believe this will be beneficial for us. We've collaborated with other EV manufacturers to advocate for CARB to make these changes, and we are seeing a substantial adoption rate in California. Many large fleets, including both companies that Scott mentioned, have engaged with over 10 major fleets in North America, and we've successfully completed all our demonstrations there. As a start-up company, one of our challenges has been having a somewhat risky balance sheet. We've received positive feedback from 2 or 3 of the largest fleets, including Scott and myself individually and through one of our dealers. They appreciate this deal because it strengthens our balance sheet with a solid financial backer, which encourages them to explore our offerings. I spoke with one of the largest fleets that has over 300 charging stations set up in California but currently lacks electric vehicles because they couldn’t find options that lasted more than 90 to 120 days. Our trucks have demonstrated reliability in various conditions, whether it was minus 20 degrees during Christmas or 118 degrees in Arizona over the last two weeks; they've performed flawlessly with zero service calls. Now, I'll pass it back to Scott for his insights.

Scott Griffith, CEO of Motiv

Craig, I love the question. Maybe just a couple of other aspects that I'd add on. One of the reasons we have this financing that we structured that comes in at closing, under the condition that we get some of these orders you're just asking about, we're going to have the working capital support for parts and production to get those into the system right away. That's been an issue in the industry in the past. People wait for orders before they can actually order parts. It takes an awful long time to then develop the inventory and build the truck and get it out through a body builder to the customer. We're trying to circumvent that time frame and really bring it to a much more assured delivery date, and we think that will help our ability to deliver against these new orders now. I'd say the second thing, look, we love these voucher programs. We love working with the states. At the end of the day, long-term, the successful OEM EV company, truck company is going to have to be competitive against internal combustion engines and diesel engines on an apples-to-apples basis, no vouchers, no cost support, no other support. And at the end of the day, that's what this transaction can do. We think it gives us the scale. It puts us on a product development roadmap to do that. And we've already got more trucks and more miles than anybody else. So we're kind of coming down that TCO development curve together after we close this deal. So I think, near term, we've got more financial support Rick mentioned, we've got this new debt structure that we're going to put in place to help support orders through those voucher programs. And then, long term, our vision is to be the low-cost provider and have the lowest TCO in the industry, and we're going to work very hard to get that.

Richard Dauch, CEO

Scott, just to reiterate a couple of things here. I served on a public company board for over 11 years. In the commercial step van space, it's been a double duopoly for a long time between chassis supply and body upfit, right? I'll give you an example. We shipped some of our trucks to one of the fleets last September, they arrived in the field in July. That's how long the upfit process took. We're still the only OEM in North America that can build our own stripped chassis from scratch and put a cabin box on it. It doesn't take much capital investment to go into the upfit part of the business as well. That will be up to Scott and the new leadership team as they go forward. We think we can offer these large fleets rather than have trucks sit waiting to be upfit for 9 to 12 months, we can have it to go from order to delivery in less than 6 months. That's a big strategic and operational advantage for this combined company.

Craig Irwin, Analyst

Great. Well, I like that. I like this deal. Congratulations for pulling it all together.

Richard Dauch, CEO

Thanks. We appreciate your support over the years. We'll see you in the field.

Operator, Operator

Next question is coming from Greg Lewis from BTIG.

Gregory Lewis, Analyst

Congratulations on successfully closing this deal. Scott, I have a question for you. The lost business in the Class A school bus segment has been a small part of Motiv's operations. As you consider the opportunity of merging with Workhorse, especially in light of Rick's comments regarding the capability to build vehicles using their chassis, how are you approaching this? Do you see this as a chance to significantly grow that market segment? I believe there is a strong anticipation for step vans to improve, but the school bus market appears to be thriving at the moment.

Scott Griffith, CEO of Motiv

Yes, Greg, I appreciate your question and I agree with your perspective. The school bus and shuttle markets utilize essentially the same platform, although there are slight variations in their construction. This market continues to evolve, and there is financial backing as well as strong community support because these buses are much cleaner for transporting kids, and shuttles are used in environmentally friendly operations like airports. The vehicles don't accumulate high mileage, allowing them to effectively utilize current battery and electric vehicle technology. This creates an ideal scenario for us, and we believe our total cost of ownership is highly competitive with traditional internal combustion engine vehicles in this sector. I believe we will further integrate these efforts and see numerous opportunities ahead. Additionally, there's potential in the municipal market, particularly with box and small work trucks, driven by similar demand from urban areas where municipalities and schools are aiming to reduce carbon footprints. They are increasingly adopting electric vehicles as a visible commitment to sustainability. We find this segment promising and expect it to remain strong in the coming years. As the commercial electric truck market grows, this segment will represent a significant opportunity for us.

Operator, Operator

Thank you. I'd like to turn the floor back over to management for any further comments or questions.

Stan March, Host

Thank you, Kevin. In addition to the earlier questions, Workhorse sought inquiries from shareholders and received many via email. For this segment, I will summarize the similar questions and invite our management team to address the various queries from shareholders. I'll begin with the first question, which asks about the terms of the sale and leaseback agreement, the convertible note, and the merger agreement for closing. I can confirm that all relevant documents and information are included in the 8-K filed with the SEC on Friday. You can find all the terms, closing conditions, and sale leaseback details there. This information is available, and we will also be filing a proxy with more details. Now, regarding the first question from an investor about why the reverse split is being considered in relation to this transaction, I will direct that to Bob Ginnan. Bob, what can you tell us?

Robert Ginnan, CFO

So the reason is because the transaction involves a potential change of control. Workhorse will be treated as a new applicant for NASDAQ listing and must meet its initial listing standards. Those standards include minimum price thresholds between $2 and $4 depending on other factors. As a result, we may need to effect a reverse stock split in order to meet these standards.

Stan March, Host

Thanks, Bob. I got one more for you, Bob. Can you provide the details on the math for the stated $105 million valuation that was in the press release last week?

Robert Ginnan, CFO

Yes. The go-forward entity is being created as a combination of the following contributions: $50 million from the Motiv side of the business, $30 million for the Workhorse business contribution, and $25 million, which is a combination of the value sale leaseback transaction and the convertible note on an as-converted basis. That totals $105 million.

Stan March, Host

Thank you, Bob. Scott, I have one for you. Can you provide more details on Motiv's financials or pro forma financials for the combined company given that the Workhorse shareholders will own approximately 26.5% of the combined entity?

Scott Griffith, CEO of Motiv

Yes. What I can say is that we'll provide quite a bit more detail in our proxy. I think the timing of that is weeks away now. We expect to file. What I can say is the transaction really strengthens the company's financial position, expected to create opportunities for our margin expansion, doing that together, reducing bill of materials, using volume on the production side, and then enabling greater flexibility to pursue future growth initiatives. So I think we're in a good position now, and you'll see more details in the proxy. And then the go forward, which we'll talk about in a subsequent presentation to really go after future growth initiatives at a lower cost structure.

Stan March, Host

Thank you, Scott. Several shareholders have been asking about the product portfolio. So I'd like to hear from both you, Scott, and Rick on how you plan to manage the overlap in the combined portfolios, particularly for Class 4 through 6, where both companies have existing products.

Scott Griffith, CEO of Motiv

Rick, why don't I take that first. I think we both noted that as a combined company, and it was on one of the slides, we'll have a full range of Class 4 through 6 trucks to serve our customers. We think these are the most advanced road-tested products out there. That's going to mean a lot to the, especially the larger fleet customer, the experienced fleet customer operator that we're going to target. We'll be developing a Class 5/6 cab chassis together. We bring a pretty decent head start on that into the mix. And then we'll be continuing to work on a longer-term cycle plan, product roadmap, if you will, that really targets that. Back to a question that was asked, we'll be continuing to focus on the bus and shuttle business; it's something Workhorse has not really played in the past. We think that's an extensible growth opportunity as well. So full stack of products from Class 4 through 6, lots of different body configurations that we can support from that and a cost structure that I think is going to be much more attractive going forward.

Richard Dauch, CEO

Yes. Let me jump in, Scott. We're working with the Motiv team on integration and planning against all functional parts of the company, including our product portfolio and our R&D roadmap. There's many details to be determined. At a high level, Workhorse imports a Class 4 cab chassis from China; Motiv uses a U.S.-made cab chassis. So you can factor in tariffs, et cetera, we'll see how that plays out. On the Class 5, 6 chassis standpoint, Motiv uses one from an OEM here in North America while Workhorse's designed from scratch and built in-house. Scott and I are going to work on that. We'll get the best products at the best cost going forward. Critical for us, we use different battery suppliers today. We'll have to map out our battery supply situation going forward. We're going to map out our supply chains to make sure where there's overlap and where there's not overlap, we can see what we can do going forward. So, a lot of work to do. Good news is we both have a well-qualified set of engineers, both in mechanical, electrical, and software and we'll put those guys at work pretty quickly.

Stan March, Host

I think a question for the combined CEOs again, if you don't mind. Is the financing in connection with the transaction enough to fund operations? Or will you need to raise more capital in the future?

Richard Dauch, CEO

Great question. I'll go first. So we believe that the proceeds from the sale leaseback and the convertible note, coupled with the potential for additional capital from our existing secured lender will be sufficient to support Workhorse's ongoing operations through the transaction close and provide sufficient capital to pay down all the outstanding debt owed to our existing senior secured convertible note holder at closing.

Scott Griffith, CEO of Motiv

Right. And then I'll just add to that, Rick. If you note in the merger agreement, and it's been mentioned a few times on the call, I think there's a condition to close that our controlling investor Motiv will provide up to $20 million in debt financing, and that's split between some working capital support on an asset-backed lending structure and then just normal operating support against the company's operating cash flow needs. So I think we've got both of those pieces in place as we hit. As we get new orders, we can kind of get those orders into the system quickly using that structure. Then also, following the completion of the transaction, we'll look to raise additional capital to fund the company's go-forward strategic execution. We'll be talking more about that in the coming months as we get closer to the close. Lastly, I'd say with a stronger financial position, we'll be better positioned to pursue future growth initiatives as a combined company. That product roadmap that Rick and I just talked about, expanding our sales activity is something that we want to invest in. Those are exciting new growth avenues for us as we get this uniform product portfolio put together.

Stan March, Host

Thank you very much, Scott and Rick. We got a question that we certainly want to answer very specific. Bob, I think I'll ask you, did Workhorse retain any patents when it had the transaction for the Aero division? Can the company still use any of that intellectual property?

Robert Ginnan, CFO

So Stan, all the relevant related patents were included with the divestiture of the Aero division.

Stan March, Host

I think back to the CEOs, does Workhorse or Motiv have any near-term contracts, regulatory approvals or partnerships or other announcements in the near term that will increase shareholder confidence in the combined company or maybe said a different way, are there any potential customers that you'd expect will submit purchase orders only if this transaction is completed?

Richard Dauch, CEO

Great, Stan. We've had conversations with the customers that started since the announcement, and we've received initially strong feedback. I can tell you that I have been on calls since Friday with our largest dealer, he's excited to meet Scott and understand the product portfolio at Motiv and see how we can help us. We're also working with him on a big opportunity for a large order for a fleet. Second, we've talked to one or two of the big fleets at my level. Scott's talked to a couple of them as well with a stronger balance sheet, with the capability of the manufacturing and the capital they have approved and their future spending. It looks like we can go out and secure some additional orders. We're not going to comment any further until we actually receive those new orders. It's on us right now, Scott and I are going to work together to go out and secure additional orders that we hope to close before the deal is finalized.

Scott Griffith, CEO of Motiv

Yes, Rick, I think I would just add. I have also personally talked to some of our customers, James Griffin, our CRO, talk to our customer base. We've had universal great support for the idea behind this. I think the compelling 8 points that we went through earlier about the support for why this transaction makes sense strategically and financially. I think our customers are pretty quickly seeing that. They see the benefits that will accrue to them over time. So I'm excited about the feedback we've had in the past few days since we announced the merger. The other thing I'd say is the timing of this transaction and assuming we close in Q4, it lays in directly to the buying cycle for next year for 2026. Large fleets, primarily that we deal with start doing their planning, their budgeting, and their fleet sizing between now and into Q4. So we fit right into that buying cycle, that planning cycle. So I really like the way this dovetails into that. So we'll be starting conversations as we start moving toward close with customers about their plans for next year and walking them through how we see the combined portfolio of products fitting into that and how we can support their plans for development of electric vehicle fleet expansion next year. So we're excited about the timing of this. That part is a little bit lucky. Sometimes, you got to be a little bit lucky, and I think our timing here is really good.

Richard Dauch, CEO

Just 1 comment Scott gave me on Monday, he had to call from one of the fleets that we spent an extensive amount of time last year on a demo for over several months and our truck passed with flying colors, ranges from 50 to 150-mile with payloads up to 5,000 pounds, we didn't miss a beat, but the customer was concerned about our balance sheet and our ability to sustain the company going forward. By putting these 2 companies together and having a clean balance sheet with the right financial backing, that alleviates that issue. Hopefully, we can turn that now into a real purchase order.

Stan March, Host

Okay. And I think the last summary question, I think mostly it's for you, Scott. I know you've talked about this, but let's come at it again. What's the first priority in driving sales in the new organization? How will the new Workhorse target the market? And do you have any particular customers that you want to attract? Or do you feel like you've got a broad enough group now?

Scott Griffith, CEO of Motiv

Yes, the key to our success lies in starting with larger fleets. We have developed a four-phase program that begins with a pilot, often leading to a first order and subsequently a multi-year contract with additional orders. This process can take anywhere from 12 months to a couple of years to complete. We aim to maintain these discussions, and as previously mentioned, we are in talks with ten of the largest fleets in North America, all of whom are currently operating commercially with one of our companies. Our goal is to expand to the next 30 or 40 fleets and initiate similar discussions, demonstrating our successful track record of guiding customers from pilot programs to single depot operations and ultimately to multiple depot operations, along with necessary infrastructure, maintenance, parts, support, and customer service. We follow a direct sales approach complemented by a dealer network, which I believe creates a strong combination. Large fleets prefer direct communication with the original equipment manufacturer as they begin to navigate this transition. Once they gain confidence and have enough trucks on the road, dealers can play a more significant role. We view this as an evolution of our direct sales model toward a more dealer-focused approach, allowing us to guide customers through all four phases—from initial pilot adoption to potentially hundreds or thousands of trucks in their fleets. We will merge our experienced sales team with the national dealer network to implement a collaborative sales strategy, including dealer groups and their sales professionals. It’s quite challenging for a dealer to close the first sale of an electric truck to a fleet that has no prior experience with electric vehicles, given the complexity of the sale and the numerous questions about technology and economics. We prefer to handle that initial stage directly, bringing dealers in as partners later on. This combination of both companies will enable us to operate effectively at scale.

Richard Dauch, CEO

Yes. Let me comment on that real quick. We have experience with a few fleets out there. It's almost followed the exact same pattern Scott talked about. You had to have a successful demo or pilot, which is simply 1 to a few units. Those demos take 30 to 180 days. They're used in different scenarios, range, the route, payloads, et cetera. If you pass that demo pilot, you can get to the initial order. These are expensive trucks, they can see an order from maybe 5 to 20 trucks. The fleets want to run those trucks now in the field for a year across all the seasons, including the peak season. If you are successful there and you get good service to the field, because sometimes these trucks get banged around. They have a heavy usage. Then they make a big decision about are they making the capital expenditures to actually make the transition to EVs. That starts with the charging systems. Scott's position, the Board at EVgo helps give him insight to the fleets across the country that I'll go ahead and put it in the EV charging systems and also where they're going in by states. You start seeing the bigger orders from the cap of the bigger companies. There are a couple who are leaders in the industry, both north of the border and here in the United States. We think we're well positioned with 2 of the leaders to earn their initial big EV transition design buys. That's a big capital expenditure. These companies buy these trucks, and they hold on from anywhere from 10 to 15 up to 20 years. What we're seeing on our own stables route is we're seeing paybacks of less than 3 to 4 years depending on the incentive programs going on. That's a good business decision. This is not going to be driven by incentive programs long-term, as Scott said. We have to drive the cost of the vehicles down, including battery costs, manufacturing efficiencies. If we do, we're confident there's a great business case for these fleets to go electric.

Scott Griffith, CEO of Motiv

To conclude, I believe this merger positions us very well to become one of the true industry leaders, backed by a supply chain that is genuinely enthusiastic about supporting our growth as we begin to expand.

Richard Dauch, CEO

And I can tell you from one of the fleets we deal with, there are 3 or 4 people who have been fighting for that business. One company has been taken off the bid list because their trucks don't last more than 90 to 120 days. Another one hasn't passed the initial pilot phase. So we're well positioned. We've got to go out and win that business.

Stan March, Host

Okay. That actually wraps up, I think we've wrapped up in summary fashion, the questions that came in from the shareholders. Thank you very much for those of you who took the time to respond. We try to make sure we got all the relevant questions addressed here. Kevin, unless there's another call on the line, I think we can wrap it up from here.

Operator, Operator

Sir, do you have any further or closing comments?

Richard Dauch, CEO

I appreciate the opportunity and thank you for your patience with us. I look forward to getting to work with the Motiv team to merge these two companies by the end of the year, and then Scott can take over and lead the next phase at Workhorse.

Scott Griffith, CEO of Motiv

My only last comment is I imagine both of our teams are listening, as Tom Brady says, let's go.

Stan March, Host

Thank you very much. Signing off.

Operator, Operator

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