Ladies and gentlemen, greetings, and welcome to the Workhorse Group's First Quarter 2023 Investor Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Workhorse Group's Vice President of Corporate Development and Communications, Stan March. Sir, you may begin.

Thank you, Darryl. Good morning, and welcome to all of you joining us on today's first quarter 2023 results call. Before we begin, I'd like to note that we've posted the results for the first quarter ending March 31, 2023 via press release. You can also find this release, as well as an accompanying presentation in the Investor Relations Section of our website. We’ve also filed our first quarter Form 10-Q this morning. We'll be tracking to the posted presentation during today’s call, so please follow along either from the link in the press release or through the website directly. And with that, let's get started. Joining me on today's call are Rick Dauch, our CEO; and Bob Ginnan, our CFO. The agenda today’s call can be found on Slide 3. Following my brief opening remarks, I'll hand the call over to Rick, we'll give you an update on the progress we've made on our strategic and operational priorities during the quarter. Bob will then walk us through our financial results for the quarter and cover our 2023 guidance. We’ll then take your questions. Our disclaimer can be found on Slide 4. Some of the comments that will be made today are forward-looking and therefore are subject to certain provisions, as a results and uncertainties. You can find the full disclaimer statement in our 10-Q and other periodic filings on file with the SEC, as well as in today's press release. With that, I'll now turn the call over to Rick Dauch. Rick.

Thanks Dan. Good morning, everyone. Thank you all for taking the time to join us today. Before I jump into the details of our Q1 performance, I want to spend a moment or two discussing the primary market segment that Workhorse serves, the North American Class 4 to Class 6 commercial electric vehicle business, true work trucks. These are challenging times for nearly every company competing in this segment, both start-ups and well-established OEMs. The generational technology transition from ICE to EV Powered Commercial Vehicles is a true paradigm shift and it's not an easy one. The ICE to EV transition will occur over decades and will require significant investment in electric charging infrastructure and power generation, vehicle and component engineering R&D, supplier tooling, factory conversion or new factory construction. Not all of those trying to establish themselves in the commercial EV space will make it. There will be casualties along the way and likely a consolidation of competitors in the segment, at both the OEM and supplier levels. Make no mistake Workhorse is one of the pioneers in the commercial EV industry, specifically in the step van segment. We are not a SPAC fund and start-up company. We are not doing EV retrofits of internal combustion engine vehicles. We are a company of the rich and long heritage in the EV step van space. While the industry transition challenges sound ominous, here at Workhorse we have an executable plan to emerge as winners. First and foremost, we have assembled the right team. We brought in experienced, capable leaders and operators from the automotive, commercial truck and military service, who are armed with a can-do, get-it-done spirit and mentality. The manufacturing complex at Union City has been upgraded and expanded. It is ready to roll and it’s now in production.…

Thanks, Rick. Let's turn to Slide 15 to discuss our first quarter financial results. Our first quarter results demonstrate the team's focus on operational execution and financial discipline. As Rick stated, we are ramping up the production and delivery of vehicles, and expect that to continue throughout the rest of the year. We expect this will generate significant revenue growth in 2023. At the same time, we are managing our cash burn well and enhancing our back office systems to make us an even more efficient organization. Turning now to results, sales net of returns and allowances for the first quarter of 2023 were $1.7 million, compared to $14,000 in the same period last year. The increase in net sales is primarily due to sales volume of the W4 CC. As Rick explained earlier, getting suppliers tooled up and launched on key components required to upgrade the W4 CC product took longer than expected. It impacted our throughput in sales in Q1. We expect to make up those units across the balance of 2023. Cost of sales increased to $5.3 million from $3.9 million in the same period last year, primarily due to the $900,000 increase in costs related to direct materials and a $1.1 million increase in employee compensation and related expenses to support vehicle sales during the period. The increase in cost of sales was partially offset by a $400,000 decrease in inventory reserve expenses and a $200,000 decrease in other related overhead costs. Selling, general and administrative expenses increased to $14.7 million from $11.9 million in the same period last year. The increase in SG&A expenses was primarily driven by a $3.1 million increase in employee compensation in related expenses, primarily due to increased headcount in non-cash stock based compensation expense. Research and development expenses increased to…

Thanks Bob. I want to briefly discuss some of our key second quarter priorities which are outlined on Slide 18. Above all else, we are focused on advancing our product – new product roadmaps and keeping them on time and on budget. Specifically, we are continuing to ramp up production and delivery of our W4 CC in the second quarter and expect to deliver significantly more vehicles than in Q1. We are on track to begin production of the W750 vehicles in Q2. The W56 program remains on track as well and we will continue to showcase the new step-van vehicle to prospective customers ahead of starting production in Q3. These trucks are now in the critical vehicle durability component and system testing phase, which we expect to complete in June and July timeframe. When the testing is complete, we will put safe, reliable demo trucks in the hands are our large last mile delivery fleets, and work to secure future purchase orders for Q4 ‘23 and ‘24 and beyond. We’ll also continue to electrify our fleet under our Stables & Stalls program, first with the W750 in the second quarter, and then with the W56 vans in the third quarter. During the second quarter we intend to earn more customer orders, grow our sales, and further build out our CV dealer network. We are making steady progress building out our CV dealer network, with plans to onboard eight to ten new dealer groups in 2023. I'll be on the road myself the next two, three weeks, meeting with targeted dealers and fleets around the country, and we have our third dealer day set up at Union City later this month on May 31. On the aerospace front, we are excited to be on the cusp of having our initial…

Thank you. [Operator Instructions] Our first question is coming from the line of Colin Rusch with Oppenheimer. Please proceed with your questions.

Thanks so much guys, and congrats on getting the trucks out. Can you talk a little bit about how much rework you had to do on those vehicles before you got them out and how the operating software is performing now that you've got them on the road?

Yeah, a couple of things. I think when we initially started the process with Green Power, we were talking about putting 14 or 15 parts on the trucks. I think we're now up to 75 and 90 parts on the trucks. There were a couple of parts that required us to go out and tool up some suppliers. I think we told you in the last earnings call that we put out a few trucks in December. We got some initial feedback, both from the dealer customers and the up fitters that are putting the backs or custom bodies that they wanted a different back panel. That was our biggest challenge in the first quarter. We had to go out, tool up a supplier in North Carolina, design the part, tool it up, get the prototypes, and then we had to change the liners. That was the big issue for us in the first quarter. We got that done towards the end of the quarter and that's now in production, so. A little longer than we thought, for sure, but based on that, I guess I would say while that's disappointing to us in the first quarter, it does show how fast our team was able to turn on a dime and go find a solution in less than 75 days. Not six months, 75 days from the time we identified the issue in early January to the time we had parts going on trucks in the middle of March. So I want to thank our CTO and our engineering team and our supply chain team. They did cartwheels to get that done in the first quarter. Operating system, so far, so good. We've done a lot of testing of the truck up at Union City. We don't see any issues.

Okay, perfect. And then with the drone, I'm just trying to get a sense of how close you guys are to material revenue for the company. How should we be thinking about that revenue opportunity for you guys, particularly on the agriculture side?

So on the agriculture side, I think we're progressing pretty quickly there and have some good programs in place, and I think we'll continue to see that grow, so I feel like that's on track. On the drone side, obviously it's a tough market and bringing it to market has been longer than we had hoped, but I think we have the technological breakthroughs, and now it's about building that market network and distribution, so that we can start selling those here in the latter half of the year.

Yeah, I'll add some color too. I think the commercial part, the last mile delivery of the packages is we got to get through with the FAA, and we got to make sure that UPS and FedEx and others really want to use these drones. We bounced back and forth from taking them off the trucks to doing it from ground stations, warehouses. We have some more demos we're going to do here in the quarter, second quarter. I think a good decision we made over 18 months ago is, can we go after the – use the LiDAR systems and camera systems. We're finding our traction with the USDA, which also owns the Forest Department or Forest Natural Resources. So there's opportunities, there's a lot of land that needs to be scanned. The way they are doing things right now is with horses and four wheelers, right. We can scan literally hundreds of acres in just a few hours. And then DOD, we've taken the FALCON out to multiple branches, and we think there's an opportunity there too. So I think we're going to grow faster on the government side than we are on the commercial side and hopefully we'll get that ramped up faster.

Okay, perfect. Thanks, guys.

Thanks Colin.

Thanks Colin.

Thank you. Our next questions come from the line of Jeff Osborne with TD Cowen. Please proceed with your questions.

Hey, good morning. A couple of questions on my side. Rick, I think one of the themes of both, The Work Truck Show and the ACT Show was the challenges with trucking being integrated with charging and the time to get the charging infrastructure in place. What level of confidence do you have in terms of the ability to work with the dealers, with potential customers to sort of push that along and avoid an air pocket between expected delivery of the trucks and when that infrastructure is in place?

That's a good question. The larger dealers we're meeting with have already started putting in their own charging systems at their locations. Several of these dealers run large rental fleets, and so they are looking at some of the areas where they use the W4 CC or the step van, specifically where they are using that. We've gone out to a couple interesting locations, one an LA company. I won't mention their name right now, but they put in a large charging station area. They've got multiple EV trucks they purchase, and they are leasing them to the little fleets in LA right now, and they are going to expand that program to multiple cities across the United States, including New York, Houston, Atlanta, etc. and Florida. So some people are out there on the cutting edge I'll say. On the backside, last week in Indianapolis we met with a distribution company who has 800 trucks and he said, basically I need help. Can you help me chart the path to EV? I need your kind of trucks, Class 4 and Class 5/6 step van specifically. He's got 800 trucks, 100 above in Canada and 700 in the United States at multiple locations. He needs an education on fast charging, slow charging, how often do you charge them? What's the route availability? How does the batteries handle the charging in the cold weather, hot weather? That's exactly what we're learning on Stables & Stalls. We can give you lots of data now for over a year of how to run an ICE fleet with old trucks, what it costs to repair them, fuel them, staff them and we're going to soon have that same data for the EVs when we electrify the Stables & Stalls. So we'll be able to…

Got it. And then just two other quick ones here. The other revenue broken out of roughly 339,000, is the majority of that affiliated with the 18 Tropos vehicles that you assembled or is there something else moving that line item?

Now, the majority of that is going to be the revenue from the Stables & Stalls package delivery. A little bit of it Tropos, but most of it is Stables & Stalls.

Got it. And then Rick, in your concluding remarks, you made reference to positive contribution margins with every vehicle delivered going forward or produced going forward, I forget how you phrased it. Were you intending to say that in 2Q you would be gross margin positive or that's just the objective?

That's a little bit early. Go ahead, Bob?

No, I think at a truck contribution level, they are positive, but positive gross margin will be a factor of volume as we start to cover the fixed cost. So no, that will not be the case in Q2.

Yeah. This company has a history of designing some pretty unique trucks and selling them for about half of what they put into them. So we put an edict out and when we got here say we're going to design, test and build trucks that we can make money. We're a publicly traded company. Got to have a path towards our profitability. This designing, building and selling cool trucks at a loss puts you out of business long term, so.

Is there an annualized run rate that you would hit that or units delivered of the 750? I assume that the 4 CC wouldn't get you there. But should that be something to think about in the spring of ‘24?

Yeah, we really haven't put together any guidance on that, but I will say that overall our fixed costs on the manufacturing side are relatively low. So with a fair amount of volume, we should be able to get to that positive gross margin.

I think one of the things Jeff, we talked about in a couple of calls is that we're early, still in the very early inning of this ICE to EV transition. There's still some price elasticity, which is a good thing for those of us who are out in the cutting edge, right. And so I'm sure we'll all have to ramp down costs in the future, specifically on batteries. But for now, the market demand, based on the California mandates alone of 9% of the fleets, when they buy trucks next year, 9% of the buys have to be EV, that's one out of every ten almost, right, so. We sat with one big dealer last week and said, ‘hey, in order for me to sell these big ICE trucks, I got to sell some EV trucks now, too.’ That's real bite in the regulatory laws out there in the clean fleet, the Advanced Clean Fleet, so.

Absolutely. That's all I had. Thank you, I appreciate it.

Great.

Thank you. Our next questions come from the line of Chris Souther with B. Riley. Please proceed with your questions.

Hey guys. Maybe just a little bit on the sales pipeline and backlog. How those are looking up at this stage? You called out five to 600 chassis you're expecting to receive this year, so maybe just visibility of either W4 or W750 on that. And then, what are we getting as kind of an early sense of the 56 as far as kind of backlog building would be helpful for folks?

Yeah, we don't really publish right now the backlog. I think that's a fool's errand. I've seen a lot of that in the last couple of years with companies quoting all kinds of backlog, yet they don't have a factory, so how the hell are they going to produce them? So we are building it from the ground up. Part of our dealer agreements, as we sign up dealers, they agree to take stocking orders. So typically that's ten per dealer. Some dealers have multiple sites. One dealer has 35 locations, another one has 21. Not every location is an EV target area. So I'd say that as we build up our dealer network, you'll see the backlog of our W4 CC and W750s grow. Chris, I'm going down to see a dealer tonight – tomorrow. Down in the Southeast region they have a real strong interest in the W750. I go to other locations with the sales team, they only want W4 CC, so it's kind of jumping around. But we're confident that we have the balance right in terms of supply and demand. We know how many chassis we've ordered from Green Power and are being delivered. We have over 500 chassis on order right now and on their way into us. We had our 200 in the first quarter, and we think we'll be able to sell all those between now and the end of the year, early first quarter next year, so.

Got it. Okay, that's real helpful. And then maybe just on the drone side.

You asked about.

Yeah the 56 as well, will be good, yeah, thank you.

W56 I'd say is early. We've had some excellent preliminary meetings in Indianapolis with some of the big companies. We had additional meetings with those exact same companies. Now, this time in California they able to actually ride and drive the W56. It got very strong reviews from almost everybody who drove it on Tuesday, Wednesday and Thursday. I was surprised or we were surprised, how much attention our W56 chassis, the strip chassis, got. I came in one morning on Thursday, a little bit early to the show and I found four people on our truck with tape measures and taking photos of our chassis. So there's an interest there. As you know, in the step-van space, it currently is basically either a freight liner custom chassis or a Ford chassis with an engine in it, and it goes to either Utilimaster or Morgan Olson for the body, right. We're kind of a disruptor here. We're going to be able to come in and build a chassis and put a body on, or we can sell our EV chassis to somebody. If they want to put a Morgan Olson body, great. If they want to put a Utilimaster body on it, that's great, we'll be able to play in all three areas there, so. I would say it's a little early. I think they are reticent to give us orders until they get a demo on their hands. We have one customer who wants one for a minimum of two weeks. One wants it for a month, and one wants it for six months. And one of those customers is a large linen company that wants its special truck in the back and we'll see, and I'd say we had multiple meetings in California with either linen companies or bakery companies which are very interested in W56 and those are big, target rich environments. One California linen company said they have over 1,000 trucks, and they are in their mandate now to convert at least 9%. That's 90 trucks alone in one year in 2024. So I think hopefully we'll give you a more clear picture as we move through the year here in the third and fourth quarter, so.

Okay, that's super helpful. And then on the drone side, can you talk a little bit about kind of the production path? It seems like the customers are getting pretty close to moving forward here on the government side. Just what are the production rates you guys would be targeting and be able to kind of hand order, you know any incremental capital needs we should expect to kind of flow through?

We built the assembly lines in there to build somewhere between 500 to 1,000. I'm not sure we'll build that many this year, we'll see. I think the customers are being very cautious to make sure they want to get their hands on the vehicles for the drones and actually put them to their paces. We expect to get three or four – well, I'd say two or three more POs in the quarter, early third quarter, and there'll be like maybe dozens of birds total. Once we get that, I think we get through all their internal testing and I think you can see some bigger orders as we head out in the year, so.

And I would add that the capital requirements for the production lines are pretty minimal.

Actually guys bought standard equipment, built their own substations. They've done some modifications. We have the substations built. We have the final assembly line built. We've staffed very lightly right now to make sure we can build some there. But I think we have like minimum 15 or 20 birds on the shelf right now, ready to go. So we've worked through our little pilot builds and that kind of stuff.

Thanks for all the color. I’ll hop in the queue.

Great.

Thank you. Our next questions come from the line of Greg Lewis with BTIG. Please proceed with your questions.

Thank you and good morning. Good afternoon, everybody. Rick, I was hoping for a little bit more color around the fix for the cabin chassis, and really what I'm wondering is, it seems like from the start you knew there'd have to be some upgrading of the chassis. I guess it was more than you thought about. Is any of that stuff where we can go back to the supplier and have some of those changes fixed before you take delivery or is that something where we know what we're getting now on an ongoing basis and we're just going to have to do all these fixes ourselves?

Great question, Greg. So I'd say a couple of things. One, we've already talked to our friends at Green Power and their supplier to make some permanent changes. One of the changes is on the lights. We thought we could get that done by February or March. Turns out they couldn't get their suppliers tooled up until September, so we had to go out and pivot. We had tooled up a small supplier to handle 25 or 30 that we shipped back in December, and that was okay. But when you're starting to bill up to 80 to 100 a month, you got to do something different. So that's one of the gaps we had to fill and we've worked that out both engineering wise, supply chain wise and financially with Green Power. The back panels I think was one that I think we thought we'd sell more of the step vans, etc. When it came in and the customer started saying, ‘no, no we want more cab chassis,’ we had a pivot to come up with that. That's something we haven't finalized yet. We've got a nice supplier that can keep up with us at the current build rates, and we'll have to make a decision whether we keep that here or we have to put that in coming in from China, so we'll see.

Okay. And then you mentioned the customer with the 40 deliveries, kind of highlighted that ‘hey, we're getting things going.’ Was that a total 40 delivery order or was that actually larger?

That’s right. Currently it's a PO for 40. It’s part of – if you remember last year, we talked about a reservation over 1,000 vehicles. So that's a conversion of some of those reservations into a real purchase order. We're talking to that same customer about a more steady pace of POs on a monthly basis. On their own nickel, they've gone up and tooled up and secured build slots at custom bodybuilders for different versions, specifically a dry van, a reefer and a flatbed. And they have some large quote activities there working on right now with some large fleets that are in the hundreds, I'll say, right. So they are successful [inaudible]. As they like to say to us, you're the only Class 4 pure EV truck in the market today.

Okay, great.

If you go to the last two shows, the last two shows I've been to I see a lot of introductions. A lot of the people's chassis, but most of them come to market in 2025 or 2026. Specifically ISUZU and a couple of other people like that, right.

No, no, no, definitely in a good spot. And then Bob, as I think about R&D, realizing we're still doing some things in development on the drone side, the existing portfolio rolling out the Next. I don't know, any kind of way for us to think about R&D on an ongoing basis or at least for the rest of the year.

I think probably the easiest way to think about it is, our run rate captures our spend. And as we move to roll out on the W56, we'll reallocate that spend. I don't see big lumpiness in R&D spend. I think it'll continue on its pace.

Okay, perfect. Thank you for the time.

Great, thanks.

Thank you. Our next question has come from the line of Mike Shlisky with D.A. Davidson. Please proceed with your questions.

Good morning and thanks for taking my question. Just a couple of follow-up questions here. First, on the Tropos, some of your earlier questions on Tropos, is there a sense – do you have a cadence as to when that might ramp up to a number of deliveries that kind of shows up in a material way your numbers or at some point, is there a point where you can tell us when you might get to that full 2000 rate?

Yeah, I'd say right now. Just like other companies, we've had some supply chain delivery issues there. We got our initial kits and I think we got 56 kits in. Unfortunately, some of those kits were incomplete or some of the parts came in with quality issues. We took a – I put a production pause in place for like five or six weeks. We asked the guys at Tropos to go to their supplier, a company called Sevic, and get their act together. They have committed to do that. They're making investment and so we think we're now starting to flow the right kind of parts here. So we can get a box out, we can get to build a full truck. I'd answer your question. I think it's going to take us to balance the second quarter to get that supply chain under control, probably late third quarter, fourth quarter right, we should get a run rate there. They are having some good success commercially with selling the trucks, withy some of the bigger name companies, especially in education systems on the west coast specifically. So I think there's a market there for that truck and we're prepared to build them.

Great. Thanks for that. And I wanted to also ask about some more details on the dealerships you've got signed up or talking with at the moment. You guys mentioned they want to add inventories to the demo units. You think you said something like ten or a modest number for each facility that will have them available for sale. Did they also – at this point, do your dealership agreements [ph] also have kind of long term minimum take rates? I remember the old Workhorse management team had several dealerships signed up for thousands of units and things like that. Obviously they weren't necessarily guaranteed commitments, but they were guidelines and there were some take rates there. Is that how your new dealership agreements are kind of structured at this point?

I'd say slightly different. When I got here, I think we had 8,032 orders from three different customers. 500 from the Pritchard Group out of Iowa, 1000 from UPS, and 6000 some north of the border up in Canada, okay. When we went back to those guys and said, hey, first of all the old C-1000 can only carry 3000 pounds, that ruled out the UPS order. When we told them that the cost was a hell of a lot more than 75,000 or 80,000 that ruled out the Canadian guy, and I give the Pritchard family a lot of credit for sticking with us. They helped, they gave us a lot of feedback on the C-1000. They helped guide us on the W4 CC and W750. And so they stuck with us and they are the ones who gave us 1,000 reservations. To come to the specific dealers, all these dealers are putting their toes in the water too on the EV space, right, and so they are learning how and what it takes to become an EV. We don't want every commercial dealer. We want a handful of dealers that we can serve with trucks so we don't get in an allocation type situation. There are some that are very, I'd say Ford in the south looking at their areas. They know the incentive programs in their states. Places like New Jersey, New York, where there's great incentives for Class 4 and Class 6 up to $100,000 a truck. Texas, nada. You would think of that as an EV friendly state, but they've got a lot of ports down there, and there's a lot of money coming in from the federal government to electrify the ports. There's a need down there, along the Charleston, the South Carolina, Florida…

Got it, got it. That’s great color. Maybe one last one for me and this is on Stalls & Stables, so I’ve got kind of a few here. You know, it appears that some things we've already [inaudible] were partially electrified elsewhere in the country, and I'm curious whether you've compared notes with any of them. All the consequences is if they are open to be – to having EVs in their fleet. What do you plan to at least when you are up and running there with these, compared to contrast yours and also theirs, either privately or publicly once that's available?

I would tell you that, Stan's working closely. We're in constant discussions with the team at FedEx in the West Coast, where they've had some success in putting some bright drop vehicles out there and the West Coast and some other locations. We are anxious to get some of our vehicles in there as well, then we can compare and contrast, and they are different and we're learning at Stables & Stalls. Some trucks are just class three, trucks that we deliver, certain routes, small packages to houses. Then we have some Class 4, 5, 6 big step-vans. We're delivering appliances, tires, lawnmowers. Those have to have a better bigger payload. Interesting for me, being new to the segment is that the UPS model and the FedEx model are totally different, same as DHL. Different size trucks, some own their fleets, some don't own the trucks, some own they have their drivers work for them, they're unionized, some are not, so there's a lot of different dynamics we're working through. What we want to be able to do is we want to be agnostic and say, if you want to order a brown truck we'll build you a brown truck that can carry 8,000 pounds. You want to have a white truck with a purple, orange label or a green label on it that can carry only 2,000 or 3,000 pounds, we can do that as well. But the common theme is, they have all committed to meet the Paris Accord of being zero emissions by 2040 and so they have to convert these fleets. These fleets are huge, 100,000, 120,000, one bakery has 66,000 delivery trucks for their baked goods here in North America and Europe. Other companies have tens of thousands of trucks as well. So there's going to be plenty of opportunities for us. As we said, we're ramping up this year our factory. Eventually we'll get to a 5,000 run rate per shift, probably by ‘25 and then if we need to, we’ll go to two shifts and that'll be 10,000 trucks a year, that's a real company, right, 10,000 trucks, $150,000, $220,000 per truck, that's a big number right, so.

Great. Thanks so much, I appreciate the color.

Thanks Mike.

Thank you. Our next question is coming from the line of correct Craig Irwin with ROTH MKM. Please proceed with your questions.

Good morning. And thanks for taking my questions. So most of my questions actually have been pretty thoroughly answered, but I was hoping maybe we could dig in just a tiny bit on the expense side and the 10 vehicles we got out in the quarter. Can you maybe just give us color on one-time expenses, as far as identifying those suppliers and engineering and integrating these new solutions into the vehicle and how that benefits you as you move to the 40 that you delivered I guess in the current quarter. And would you expect some of these early set-up and start-up expenses to having a material impact on margins?

I think overall Craig, I don't expect them to have a material impact on margins. I think, you know, my previous comment on the R&D side kind of applies there that we'll just move those into the building of the next vehicles. Don't think it's substantial. I think the biggest issue for what you're trying to get at is, as we talk last year, we've maintained our workforce in our plant. And so obviously with the smaller volume, we've got those – everyone's working on other stuff, and as we ramp up volume, they'll be reallocated to the direct production vehicles. So I think that's probably the biggest issue that's kind of getting at what you're trying to get to is, when you look at the Workhorse, they'll become more fully productive as we ramp up volume.

Yeah, we made a conscious decision when we had to shut down production and you can see not to layoff our hourly workers, right. I said it before, they didn't make a mistake, right. Why should they be punished? In a very tight labor market, we want to make sure we keep our skilled workers. There's some expense that we have right now as we get production going on and they’ll do better. We had to move locations. We opened up Wixom, we moved Aerospace. We moved the headquarters. We had to up pretty good, so we have a pretty tight handle. Bob's got a tight control on the reins there. So keeps the purse nice and tight. I think first quarter’s pretty good window into direct infrastructure.

Excellent. It's good to hear Bob’s got that strong grip. So just to pivot a little bit, the W56, you guys disclosed eight of the 12 built programs are complete. I guess that’s as of this call. It’s not as of the end of the quarter, so if you could maybe clarify that. And then if you could maybe talk a little bit more about the remaining four build programs, and what initial production would look like there. Are we starting with one a week? Are we starting with a couple a weeks? What should we expect?

Yeah, great questions. So Dave Burkey came to us, 40 years plus experience in the industry building unique vehicles. He laid out very quietly for us how many trucks he wanted to get built. Number one was just, let's build it, let’s come together, right. So we had a team at Union City putting the parts together. I'm really proud at the engineers, supply chain, the manufacturing, and sometimes the suppliers are sitting right online as we build the trucks. We're not building them at prototype shops, we’re doing it right in the factory and we're learning a lot. So that means you have to fit up issues, torque, can't get that bolt touched and that kind of stuff like that, wires crossing over. So we're now in the stage, the first four I think we are basically just chassis to make sure we could build the chassis, right. What's it going to take to build the chassis? Then we started getting into the full vehicle. We have one built in time for a NTEA Show. I think we now have three full vehicles out at test; one in thermal testing, one at brake testing, and one in durability testing. Those tests take anywhere from two weeks to 40 days, 40 work days. You start the truck without a load, then about a week, you put it in a half load, and then basically towards the end of the testing, you put it in 100% load. So W56 can carry 10,000 pounds of payload. So we'll load that thing up with 10,000 pounds of water, basically, you know in big totes. We've learned a lot already. So we've learned a lot and it's a lot of software configurations that we've done. So we're doing that, and then we go in…

Excellent. Well, thank you very much to take my questions. Congrats on the progress.

Thanks Greg.

Thank you. There are no further questions at this time. I would now like to hand the call back over to management for any closing remarks.

Well, I appreciate your questions and your interest in the Workhorse and we're going to go back, put our nose in the grindstone and kick some ass in the second quarter and get ready to build and sell some trucks and drones. Thanks a lot and have a great day!

Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.