Stanley March; Vice President – Corporate Development and Communications; Workhorse Group Inc
Richard Dauch; Chief Executive Officer, Director; Workhorse Group Inc
Robert Ginnan; Chief Financial Officer; Workhorse Group Inc
Operator
Greetings, and welcome to the Workhorse Group’s Fourth Quarter and Full Year 2024 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. At this time, I’ll now turn the conference over to Stan March. Mr. March, you may begin.
Stanley March
Thank you, Rob. Good morning. We’d like to welcome all of you to Workhorse’s 2024 Results Call. Before we begin, I’d like to note that we posted our results for the year ended December 31, 2024, via press release as well as filed our 2024 10-K with the SEC this morning. You can find both of these documents and an accompanying presentation that will form the basis of today’s conversation on this call in the Investor Relations section of our website. We’ll be tracking along with the presentation during the call.
Joining me on the call today are Rick Dauch, our CEO; and Bob Ginnan, our CFO. For today’s agenda, please turn to Slide 3. Following my opening remarks, I’ll hand it over to Rick, who will give you an update on our strategic and operational priorities throughout 2024. And Bob will then walk us through the financial results before discussing our continued actions to preserve cash and extend our financial runway. Then Rick will wrap us up before we open the call to questions.
Our disclaimer can be found on Slide 4. Some of the comments that will be made today are forward-looking and are subject to certain provisions and are also subject to risks and uncertainties. You can find the full disclaimer in our 10-K, which again was filed this morning as well as in today’s press release. I’ll now turn the call over to Rick Dauch. Rick?
Richard Dauch
Thanks, Stan, and good morning, everyone. Thank you all for taking the time to join us today to discuss our 2024 results. Let’s jump right into Slide 5. As we navigated 2024 and moved into 2025, it’s clear that the landscape and pace of adoption for commercial EVs continues to shift. Recent regulatory pauses, like the state of California withdrawing its waiver request to the EPA, and a temporary freeze on federal fleet procurement have created tremendous uncertainty in the marketplace.
Several fleets have paused or delayed their EV investment plans. Fortunately, a few have not, and several states continue to move forward with their plans to electrify their state-funded fleets. Here at Workhorse, we did not build our business model around political cycles. We built it on designing, building, and selling great trucks with great people and with great business partners. What remains constant is that our vehicles, especially the W56 family of products, are proving their value and real-world operations in the last-mile delivery space.
Beyond the numbers, drivers and owners are noticing the difference. The W56 offers smooth ride and acceleration, quiet handling and much better visibility, factors that improve safety and reduce driver fatigue while also lowering operating costs. In the fourth quarter, based on direct customer feedback after multiple fleet demos, we launched the new W56 208-inch wheel-based truck in both strip chassis and step van variants as a longer wheel-based version of the initial W56. We have seen positive customer response to this new vehicle and have already received a purchase order for 13 of the 208-inch wheel-based step vans, which we expect to begin delivering in the second quarter of this year.
We also received approval for the sale of our W750 and W56 step van models in Canada last month, which is an important market that was not previously open to us with these step vans. We are scheduled to start demos of both vehicles with a large national fleet in Canada up in April and May. While we work hard to sell more trucks, we have also worked to reduce our operating costs in order to extend our operating runway as a startup EV company.
We made significant reductions in headcount and other spending activities across the board in 2024. These reductions were tough but they were necessary. People, process, product, and partners have been the guiding principles of our mission from the start of our leadership tenure here at Workhorse. We’ve achieved a lot of what we set out to accomplish through rigorous process discipline and product innovation.
But I want to take a moment to talk about our people. Our team is the driving force behind everything we’ve accomplished that you see on this slide, and their dedication and, at times, sacrifice have been nothing short of extraordinary. When challenges arose, our leadership team led by example by taking pay cuts or deferrals. Over the past year, every member of our workforce has stepped up, taking on increased workloads, foregoing pay raises and reduced benefits, including the suspension of 401(k) contributions and endured both an extended furlough and a [ 60% ] reduction in staffing, all with the shared goal of conserving every dollar to secure our future.
Our entire team is fully dedicated to our long-term success, even in the face of the uncertain and turbulent commercial EV market conditions we face today. Despite these challenges and EV market segment realities, our workforce attrition has been remarkably low. Rather than run for the exit, our team has leaned in, working harder than ever, finding ways to innovate, increase efficiency, reduce costs and deliver exceptional products with fewer resources. This is a team that believes wholeheartedly in our vision, in our products and our abilities to exceed. Together, we are weathering the storm, more united and more focused and poised to continue driving the company forward.
We stay focused on what is in our control and to do our best to adapt to those market factors like changing government mandates, tariffs, and customer EV purchasing plans that are outside of our control. You have heard me speak in the past about our financing arrangement with ATW, which provides us important support to execute on our product road map and manufacturing operations. ATW has been an excellent financial partner for us. We continue to look for effective and efficient ways to finance the company going forward. With minimal debt, over $40 million of inventory and a 420,000-square-foot plant that we own, which sits on over 100 acres of land, we still have financial levers to help us extend our runway here at Workhorse.
Moving to Slide 6, let me take a moment to discuss our continued product development work. Over the past 3 years, we’ve made moves to establish Workhorse as a leader in the medium-duty EV space, something many others in this industry can’t claim. While others have stumbled and/or failed, we have stayed focused and executed on our strategy. We have built in-house manufacturing capabilities to produce complete step vans, making us the only North American-based OEM capable of doing so. Every other EV chassis supplier is 100% reliant on Morgan Olson and Utilimaster for the installation of cabs and bodies based on 50-plus year old designs.
We have achieved full market coverage in the Class 4 to 6 commercial step van segment. We’ve met both FMVSS and CMVSS certification requirements and successfully tested our vehicles, both on the test track and in engineering labs and, most importantly, in the real world with last-mile fleets across the country and at our own FedEx Ground routes here in the Greater Cincinnati area.
We’ve established the processes and systems to support long-term business growth, including a national dealer network, a capable service and parts supply network with trained service technicians and a customer support infrastructure.
We have qualified for major state and federal incentive programs, including California’s important HVIP and ICEV certification programs. We have been awarded both federal and state government procurement contracts, including Sourcewell on GSA. We’ve achieved approval on import vehicles in Canada, where we’ll start those new product demos in April and May. And we’ve completed successful demos with extremely positive feedback from several fleet operators. We have successfully passed every single customer demo that we’ve done over the past two years across the country.
And we are continuing to push forward. Our W56 208-inch wheel-based model recently received full regulatory approval, met all FMVSS and CMVSS certification requirements and successfully completed 250,000 highway-equivalent miles in the durability testing. As I’ve said earlier, we’ve already secured fleet orders for this model, which are scheduled to ship in April and May, proving that it’s a viable, no-compromise commercial vehicle solution that fleet customers want.
In addition, we’re working on a reduced range 140-kilowatt W56, which remains on track for Q3 start of regular production. Again, this development was initiated specifically at the request of one of the largest last-mile fleets in North America, who is seeking a lower-cost step van with a 100-mile range versus a 150-mile range. Across our product lineup, we now work with more than 30 certified upfit and body partners across the country to provide fleet-ready configurations with unlimited options.
Our recent awards from the city of Tacoma, Washington through Sourcewell are an example of the importance of these upfitter partnerships. One of our dealers in California also recently was awarded DGS contracts to sell both the W4 CC and W56 vehicles to government-funded fleets in the state of California. We are confident in our people, our products, our supplier and dealer partners, our engineering capabilities, our manufacturing processes, and our service and upfitting networks position us well to take advantage of near-term and long-term opportunities when fleets choose to start their transition to EVs.
Moving to Slide 7, let me talk a bit more about our W56 step van and its proven performance in the field. Let me start by saying that Workhorse simply designs and makes great commercial work trucks. They just have to be commercial electric vehicle work trucks. The W56 was designed for the demands of last-mile delivery fleets. With a range of 150-plus miles, a cargo capacity of up to 1,200 cubic feet, and expected 15- to 20-year estimated operating life based on durability testing results, it’s engineered for the job.
Fleet operators are seeing tangible savings, averaging 27 to 31 miles per gallon equivalent compared to just 6 to 7 for typical ICE vehicles. Even (inaudible) without incentives, EV operating costs are still 22% lower than equivalent gasoline or diesel fuel-powered trucks. When you factor in reduced maintenance and lower energy costs, the total cost of ownership delivers a payback of just 4 to 5 years without relying on any government subsidies.
One of the strongest validation of our product comes from our work with FedEx and its independent FedEx Ground service providers. In 2024, we successfully demoed the W56 with Federal Express in Memphis and with FedEx Ground and signed a 3-year master framework agreement with FedEx, and we delivered our first 15 trucks last year. We expect an RFQ midyear for 2025 orders, and we’re seeing increased demand from FedEx Ground contractors across the US.
Take, for example, a FedEx Ground contract in the San Francisco Bay Area who purchased a W56 last year. After more than 6 months in service, he told us and I quote, The W56 is the best EV step van we’ve driven. Nothing else comes close.
That same sentiment is echoed by FedEx contractors in California, Minnesota, and Pennsylvania who are adding W56 to their fleets. When we recently visited FedEx terminals in the Bay Area, we saw rows of competitor EV steps sitting idle, waiting on spare parts, waiting on service, or waiting on answers. Some even had failed brakes. Workhorse customers don’t have that problem. Our well-designed and well-built trucks combined with a superior dealer support and service network is setting us apart from other startup EV OEMs and even some of the traditional automotive truck OEMs in the commercial EV market.
One of the most telling examples of W56 performance happened just a few weeks ago. A potential customer in California had concerns about whether our vehicles could reliably handle their long delivery routes, which could be up to 150 miles long. So we put it to the test. A driver picked up the W56 from our dealer in Southern California and drove it 165 miles to the customer’s location. This was all highway driving, 55 to 60 miles an hour through steep mountainous terrain.
When they arrived, the truck had 12% state of charge remaining. The entire trip was logged via Geotab Telematics recording 40.21 miles per gallon-equivalent and used just 76% of the battery’s charge. This was an unloaded vehicle, but the distance, highway speeds, and elevation changes made it a true test of capability, and the W56 delivered, exceeding the stated range of 150-plus miles.
In another tough test, we conducted a multi-quarter demo with a large industrial supplies and linen company. The W56 handled a 45-mile daily route, carrying between 5,000 to 8,000 pounds of payload every day for more than 6 months with only one downtime incident that was addressed by our engineering and service teams overnight. These real-world demonstrations continue to validate the strength and capability of our W56 product family.
As previously stated, from a product, production, and operating system standpoint, we have succeeded as much of what we set out to do. What we can’t control is the market’s readiness to buy commercial EV step vans at scale. We are currently at the table with Fortune 500 national accounts, government entities, and last-mile delivery fleets that have aggressive net zero goals.
Publicly, they remain committed to electrification and meeting strict greenhouse gas emission centers. They need reliable, durable, and capable commercial vehicles that deliver real-world performance without operational trade-offs.
That’s exactly what Workhorse and specifically our W56 provides, a no-compromise zero tailpipe emission solution that is built to work. As Scott Davidson, CEO of Revolv put it, and I quote, Workhorse has proven to be a standout partner in the transition to electric vehicles. We’re excited to continue bringing Workhorse vehicles into our ecosystem and helping more fleets operate efficiently and deploy next-generation technology.
Turning to Slide 8. Throughout 2024, we continued to electrify our own fleet of vehicles being used in our Stables by Workhorse initiative. We now have 13 electric vehicles in our fleet, including both W750 and W56 step van models, and we delivered 154,000 packages to FedEx customers during the 2024 peak holiday season. Our electric fleet of stables provides first-hand data on the benefits and challenges of independent fleet operators’ experiences while executing last-mile delivery operations. It also provides important insights into how fleet customers can plan for and manage their own transition to EV operations.
In the real world, data backs up that enthusiasm. During the peak holiday season in December, W56s in service with contracts in Northern and Southern California, Minnesota and our own operations in Ohio consistently achieved uptime of 93% to 97% on a daily basis. That’s a critical differentiator versus competitor EV products and even with older ICE commercial products. The bottom line is that our trucks work. With that, I’ll turn the call over to Bob to discuss our financial results.
Robert Ginnan
Thanks, Rick. Let’s turn to Slide 9 to cover our full year results. As a reminder, the 12/31/2024 financial statements have been adjusted for the March 2025 1-to-12.5 reverse stock split. Sales, net of returns and allowances, were $6.6 million for the full year 2024 compared to $13.1 million in 2023. The $6.5 million decrease in sales was primarily due to lower W4 CC truck sales compared to the same period a year ago, which was offset by an increase in W56 truck sales, service revenue generated from operating companies, installs and Workhorse routes, Drones as a Service before the Arrow divestiture and other service revenue.
Cost of sales for the full year 2024 was $28.2 million, a decrease of $9.5 million compared to $38.4 million in 2023. The decrease in the cost of sales was primarily due to lower W4 CC vehicle sales, partially offset by higher W56 vehicle sales and additional service revenue. The decrease was further driven by cost-saving initiatives, including reduced employee costs of $3 million, improved inventory management resulting in a savings of $4.4 million, lower consulting expenses of $1.5 million, and lower freight expense of $1.4 million, partially offset by higher depreciation and amortization expenses of $3.1 million.
SG&A expenses for the full year 2024 were $42.5 million, a decrease of $13.1 million compared to $55.6 million in 2023. Lower SG&A expenses were primarily driven by $8.2 million decrease in employee compensation-related expenses due to lower headcount, decrease of $2 million in consulting expenses, a decrease in legal and professional expenses of $1.7 million, a decrease of $1.2 million in marketing expense, a decrease in travel and entertainment expenses of $800,000, and lower corporate insurance of $600,000, partially offset by a $1.1 million increase in depreciation and IT-related expenses.
R&D expenses for the full year 2024 were $9.1 million, a decrease of $15.3 million compared to $24.5 million in 2023. The decrease was primarily driven by a $6.9 million decrease in employee compensation and related expenses due to a lower headcount, a $4.1 million decrease in prototype expenses related to development expenses for the W56, which was launched in 2023, a $3.4 million decrease in consolidated expense related to W56 178 wheel-based model, offset by development of the W56 208 wheel-based model and a reduction of other expenses by $900,000.
Other loss of $10 million for the year ended December 31, 2023, represents the impairment of the company’s investment in Tropos. Interest expense net for the year ended December 31, 2024, was $22.2 million compared to $8.7 million in 2023. The increase was primarily due to an $11.9 million loss on fair value of our convertible notes and an increase of $2 million of interest expense compared to $1.5 million of interest income in the prior year due to higher cash balances in the previous periods.
During the year ended December 31, 2024, the institutional investor converted $31.2 million of principal into common stock, and the company recognized a $2.0 million fair value net loss on conversion in net interest and the consolidated statements of operations. As of December 31, 2024, the estimated fair value of outstanding warrants totaled $5.8 million. During 2024, the company recorded a $5.8 million fair value net loss to the consolidated statements of operations related to outstanding warrants.
For the years ended December 31, 2024, and 2023, the company incurred taxable losses and, therefore, no provision for income tax has been recorded. During both 2024 and 2023, the company received a $100,000 as refunded from prior year tax provisions. Net loss for the full year 2024 was $101.8 million compared to a net loss of $123.9 million in 2023.
Additionally, we executed a 1-for-12.5 reverse stock split two weeks ago, which was intended to increase the market price of our common stock and regain compliance with the minimum bid price requirements for continued listing on NASDAQ. Ensuring we remain listed on the national exchange significantly benefits our shareholders and business as it enables a wider diversity of options for us.
On Slide 10, you can find our balance sheet. As of December 31, 2024, the company had a total working capital of $8.2 million, including $4.6 million in cash and cash equivalents, net accounts receivable of $500,000, and other receivables of $500,000, inventory net of reserves of $41.8 million and accounts payable of $11.5 million. During 2024, we spent $4.1 million on capital expenditures and expect the same level of spending in 2025.
Now let’s turn to Slide 11 to discuss our financial runway. We recognize the importance of strength in our balance sheet and took significant cost reductions throughout 2024. We reduced monthly operating cash to below $3 million a month, which is materially lower than we were at a year ago, and you can really see the results on the income statement.
As we look ahead, we will continue to focus on seeking additional opportunities to reduce costs, increase cash, and ensure we have the financial runway to achieve our strategic goals. Like last year, given the level of uncertainty in the EV landscape right now, we tend to report on progress when it occurs. As a result, we will not be providing specific annual revenue or guidance at this time. And with that, let me turn the call back over to Rick.
Richard Dauch
Thanks, Bob. On Slide 12, you can see our priorities and our near-term priorities remain unchanged. We want to extend our financial runway while advancing our product road map and ramping up production while securing more orders for our commercial electric vehicles. We fully recognize the EV adoption in the commercial space is taking far longer than previously forecasted or expected by industry experts. External factors, regulatory delays, shifting incentives, the lack of adequate charging infrastructure and unpredictable political have created significant headwinds and slowed the pace of EV adoption at even the largest last-mile fleets and at the federal government level.
But the fundamentals of business logic transition to EVs in the last-mile delivery segment remain the same. Medium-duty commercial EVs make sense. They typically service customers across the 50- to 100-mile route and return to duty station every day, leaving plenty of time to be recharged. On a few of our fleet demos, customers were only having to charge our vehicles 1 times to 3 times per week.
Workhorse is delivering a no-compromise truck that drivers love, one that just happens to be electric. It performs on the job, reduces total cost of ownership, provides a real return on investment, and it eliminates emissions. We are fighting hard to secure breakthrough high-volume orders with national fleets, and we think we are close to doing so.
Simultaneously, we are working on smaller orders with a high focus on the I-5 and I-95 corridors where states like California, Washington, New York, and a few others have effective incentive programs or are mandating that their own state-owned fleets start to adopt EV vehicles.
As we look ahead to the rest of the year, we will continue to execute on our product road map and work diligently to gain momentum on the revenue side of the business. At the same time, we will make disciplined decisions to reduce costs, preserve our cash, and extend our financial runway. We look forward to providing updates as we make progress.
Again, we have proven products that meet the needs of the last-mile fleets who have publicly committed to transition to zero-emission vehicles. The question remains, are these fleets truly still committed to that transition? And when will they execute on their commitments and plans? Once again, thank you for your continued support and patience. With that, I’ll open up the call for questions. Rob, can you take it over?
Operator
(Operator Instructions) At this time, I’d like to hand the floor back to Mr. Dauch for closing remarks.
Richard Dauch
No, that’s it. I appreciate it. Those of you who are listening, hang in there with us. We’re doing our best, and we’ll work hard to secure those orders that we need so we can build great trucks and start to transition to EVs. Thanks, and have a great day. Bye.
Operator
This does conclude today’s teleconference. We thank you for your participation. You may now disconnect your lines at this time.