Workhorse Group Inc. (WKHS) Q1 2021 Results - Earnings Call
Workhorse Group Inc. (NASDAQ:WKHS) Q1 2021 Earnings Conference Call May 10, 2021 10:00 AM ET
Company Participants
Rob Willison - Chief Operating Officer
Duane Hughes - Chief Executive Officer
Steve Schrader - Chief Financial Officer
Ryan Gaul - President, Commercial Vehicles
John Graber - President, Aerospace Operations
Conference Call Participants
Greg Lewis - BTIG
Colin Rusch - Oppenheimer
Craig Irwin - ROTH Capital Partners
Mike Shlisky - Colliers Securities
Chris Souther - B. Riley
Craig Shere - Tuohy Brothers
Thomas Boyes - Cowen
Operator
Ladies and gentlemen, greetings and welcome to Workhorse Group’s First Quarter 2021 Investor Conference Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Workhorse Chief Operating Officer, Dr. Rob Willison. Sir, you may begin.
Rob Willison
Thank you, operator and good morning everyone. We appreciate you taking the time to join us for our call. Before the market opened, we issued a press release with our results for the first quarter ended March 31, 2021, a copy of which is in the Investor Relations section of our website. We also released our Form 10-Q this morning.
I am going to turn the call over to our CFO, Steve Schrader in a few moments. And Steve will walk us through our financial results for the quarter. After that, our CEO, Duane Hughes, will give you an update on our business, provide an outlook for the remainder of the year and introduce our new commercial vehicles and aerospace presidents.
But before we begin, I want to call your attention to our Safe Harbor provision for forward-looking statements that is posted on our website and as part of our quarterly update. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our 2020 Form 10-K and other periodic filings on file with the SEC, provide further detail about the risk factors related to our business.
And with that, I would like to turn the call over to our CFO, Steve Schrader. Steve?
Steve Schrader
Thanks, Rob and thank you to all who are joining us for today’s call. This morning, we issued a press release, which discusses the results of our operations for the quarter. Additionally, as Rob just mentioned, our Form 10-Q was also filed today. I recommend going through both materials to give more color on the information being discussed.
Now, to our results. Sales for the first quarter of 2021 were recorded at $521,000 compared with $84,000 in the first quarter of 2020. The increase in sales was primarily related to an increase in trucks delivered. Although we have produced 38 trucks as of today, there were a total of 6 trucks delivered in the first quarter. Cost of goods sold increased to $6.2 million from $1.7 million in the first quarter of 2020. The increase in cost of goods sold was primarily related to an increase in the volume of trucks shipped as well as an increase of employee cost and freight costs.
Selling, general and administrative expenses increased to $6.9 million from $5.6 million in the same period last year. The increase was attributable to an increase of employee and consulting costs. Research and development expenses increased to $3.9 million from $1.9 million in the same period last year. The increase in R&D expenses was primarily related to an increase in prototype truck builds as well as an increase in employee and consulting expenses. Other loss increased to $136.6 million from other income of $865,000 in the first quarter of 2020. The operating loss was primarily related to a reduction in value of the fair value of the investment in ride. This loss is non-cash and is determined by the stock price a ride as of 3/31/2021, which was $11.77.
Interest income net increased to $14.9 million in the first quarter compared to $13 million from the same period last year. The increase in interest income was primarily related to the non-cash mark-to-market adjustments related to the convertible debt instruments that were in effect during these periods. Net loss in Q1 of 2021 was $120.5 million compared with a net income of $4.8 million in the first quarter of 2020. Excluding the non-cash adjustments, operating loss for this quarter is $16.5 million compared to $9.1 million in the same period last year. As of March 31, we had approximately $205.1 million in cash on our balance sheet. That concludes my financial overview.
I will now turn the call over to Duane to discuss operations and outlook. Duane?
Duane Hughes
Thanks, Steve and good morning to everyone on the call. We appreciate you taking the time to join us today. In our March call, we informed you that we had better aligned our efforts to increase production output. Our Union City manufacturing team with our 25 plus year history of producing medium-duty chassis and our Cincinnati and Union City product and manufacturing engineering teams continued to work closely with our partners, Hitachi and Belcan Engineering. In addition, to Belcan support with boots on the ground, we have Hitachi, who brings 110 years of manufacturing legacy and more than 60 years of IT leadership to improve the design and execution of our production line. Hitachi is also working with us to deploy best practice engineering, sourcing and production processes in order to achieve our goals. These efforts from our integrated teams have begun to bear fruit and we have produced a total of 38 trucks year-to-date more than doubling the number of vehicles produced compared to the previous three quarters combined. Two of our customers, Richard Automotive and Pride Automotive Group are excited about receiving these vehicles over the next few weeks. They are eager to begin their up-fitting and extended marketing efforts.
Contractually, we work to deliver the first vehicles to pride in July, but at their request, we were asked for a handful of vehicles early to begin their marketing efforts and we are happy to accommodate them. Although we are hoping to have achieved this year-to-date number of trucks produced sooner, we took the additional time to ensure that we are delivering a top quality product to our customers. Both teams from Hitachi and Belcan have helped us apply the findings of what we have learned during last year’s operations assessment into our day-to-day workflow. Belcan has been instrumental in helping us get our production efforts up and running by providing engineering and production resources to ensure smooth operations until we can hire permanent team members. Their team has been dedicated from the get-go and played a pivotal role everyday for the past few months. Although we are phasing out their hands-on support, we appreciate their efforts in helping kick start our production activity.
Our relationship with Hitachi continues to grow in many ways. Hitachi Capital supports us on developing key strategic accounts through inventory finance and capital optimization solutions. A great example of this is with our premier customers, Richard Automotive and Pride Automotive Group. Hitachi Capital has also established a Workhorse Dealer Advisory Board, involving 6 key channel partners, advising us on developing a dealer network, parts financing and service and warranty support. We continue to have conversations about collaborating on charging infrastructure capabilities through Hitachi’s ABB power grids and e-motion suite of solutions, developing and expanding on our dealer sales and support network. In addition to the external resources we just discussed, we have also been growing the number of assembly workers at our Union City production facility. We now have approximately 100 assembly line employees and 40 managers, inspectors, material planners and buyers, which brings the number of staff at our Union City production facility to nearly 140 employees.
Today, I am also pleased to announce that we have entered into a strategic agreement with EAVX, a subsidiary of J.B. Poindexter & Co. who operates the largest number of commercial truck body and accessory manufacturing plants throughout North America. This agreement leverages Workhorse’s leadership in last-mile delivery, including EVs, control software and drone technology, and EAVX and the Poindexter Group of Companies’ decades of experience with vehicle body engineering, construction and assembly.
We look forward to taking the best attributes of our two companies and applying them to fleet operations and to developing the next generation of last mile electric delivery vehicles. The agreement also opens up other valuable areas of collaboration, including development and manufacturing partnerships. Though we are certainly making steady progress in improving our manufacturing throughput, we are adjusting our 2021 production estimate to 1,000 units. The reasons for this adjustment are issues within the supply chain and our commitment to get to best practice processes, put those in place and enable us to scale our manufacturing capability down the road. We believe that the commitment to ramp up in this way will ensure we are well positioned to deliver the increased volumes we expect in 2022 and beyond.
To speak to the supply chain issues, from the onset of this year, the entire automotive industry has been crippled with challenging offshore shipping delays of commodity raw materials and electrical components in addition to shipping container shortages. Port congestion at both Long Beach and LA Ports are at near or all-time highs on all key metrics. Almost all automakers have spoken publicly on this issue of component shortages and the Biden administration has also made public announcements about working to address the component shortages. Being one of the worst supply chain issues within the contemporary automotive manufacturing space, the entire industry has unfortunately experienced a slower output of vehicles. We are certainly not immune and have faced bottleneck problems over the past few months, which we are working to alleviate. However, we expect the situation to remain challenging in the near-term and for the rest of 2021.
Nevertheless, looking at the situation with a glass half full approach, despite the external circumstances we face, we continue to make the most of things we can control. In order to address the battery sourcing issue we dealt with at the end of last year, we initiated a search for a reliable second source. I am proud to share that we recently signed an agreement with Coulomb Solutions, a North American distributor of Contemporary Amperex Technology, or CATL, a global leader in lithium-ion battery development and manufacturing. These new batteries are lighter weight and will reduce our costs while improving performance. While we can’t control some aspects of our supply chain, customer service is an area very much within our control. We are growing our customer care team to further ensure we are giving our customers the best possible support. This includes matching them with the most appropriate charging infrastructure. We want our customers to be fully equipped with what they need prior to receiving our vehicles.
In that spirit of customer care, we plan to enhance the consumer experience with an end-to-end approach, which begins at the onset of the sale and continues through the lifecycle of our vehicles. One example I would like to share is our approach on maintenance documentation, which has always been a priority at Workhorse. While working with some of the most rigorous and experienced maintenance providers in the industry has been valuable so far, we are taking this commitment to customer care one step further by creating video tutorials for common repairs. Our user-friendly formats will make it easier for partners and customers alike to properly maintain their vehicles. State-of-the-art training, best-in-class documentation and customer support are key enablers for keeping our vehicles on the road.
As part of the broader effort to improve our manufacturing processes and build high-quality products that exceed customer expectations, we have appointed Ryan Gaul to the newly created position of President of Commercial Vehicles. Ryan is in charge of managing our Commercial Vehicle division and will be responsible for commercial and supply chain operations of that division, including our manufacturing facility in Union City. He brings us nearly two decades of automotive experience in senior and executive management positions and has held leadership roles at Gentherm Inc., a market leader and developer of innovative thermal management technologies. Ryan has previously spearheaded initiatives within manufacturing, supply chain, M&A and business development, amongst others. Ryan has hit the ground running and is already demonstrating that his skill set and experience translate well to Workhorse.
I would like to welcome Ryan on for a few minutes and give his initial impressions of the team. Ryan?
Ryan Gaul
Thanks, Duane and good morning everyone. First and foremost, I want to say that I am very excited to be joining the Workhorse team at this pivotal time in its history. Certainly, Workhorse with its first to market advantage in the last mile EV delivery space is in an enviable position in the EV delivery truck market. The additions of HorseFly drone technology and the strong IT position we hold there as well as the complete system integration of EV truck and drone using Workhorse’s proprietary Metron platform presents a very compelling offering to the market. Beyond having market leading technology, the team I have met here is just a fantastic group of truly dedicated experts and the combination of an innovative set of market leading technologies that are already on the market, not just concepts and a topnotch team of dedicated experts made the decision to join Workhorse an easy one for me.
I am a strong believer in the growth opportunities ahead for Workhorse in delivering technology solutions to today’s last mile delivery market and even more importantly, the ability of this team to deliver solutions for the rapidly evolving last mile delivery market of the future. I came to Workhorse from a global organization that is the dominant leader in its market and I am proud to have been a part of the executive team that led that organization to the position of leadership it holds today. I am very familiar with the challenges of scaling a business and I am looking forward to bringing my experience in successfully scaling a business and as well as automotive industry best practices to Workhorse as we rapidly scale our own business. From Day 1, my priority has been our manufacturing facility in Union City, Indiana. I have been able to roll up my sleeves and add my contribution to the vehicles we have produced since I started. Of course, I am also focused on expanding our customer base and building on the incredible strategic partnerships we have in place. Thanks again, Duane for this incredible opportunity.
And with that, I will hand it back over to you.
Duane Hughes
Thanks, Ryan. I would now like to talk a bit about our sales and marketing initiatives. As we gain momentum and witness growth within the operational front, we want to make sure we are making progress on our marketing initiatives as well. We are constantly looking for opportunities to market our brand in a way that captivates our prospective customers. In addition to corporate branding partnerships, we continue to promote our purpose-built for last mile delivery theme throughout all channels of our social media platforms and even beyond. As mentioned earlier this year, we are participating in Pritchard Companies’ purpose-built tours that showcased Workhorse vehicles in 14 different U.S. cities to-date. Not only did we do this to exhibit our vehicles, but our team also purchased groceries, PPE and other needed items for charitable groups and schools.
Our mission with this campaign in particular is to bring awareness to companies and cities about the electric vehicle revolution, how it can help reduce greenhouse gas emissions and how to create a structure that supports the city’s EV goals. This is very well aligned with the Biden administration’s support to the EV and clean-tech industry. One example I would like to share was the first stop on the purpose-built national campaign tour in Tampa, Florida over Super Bowl weekend. We focused on giving back to the Tampa Bay community by donating food, housing supplies, diapers and school supplies to local non-profit organizations.
During the event, we raised money for the Tampa Bay Boulevard Elementary School through parking fees at an all day event, which were ultimately donated back to the school. We also delivered thousands of items such as PPE from our Workhorse vehicles to those that needed it most. There was an overwhelming interest and excitement for the two Pritchard-owned Workhorse vehicles we showcased and we were encouraged by the public’s full support of our mission to electrify the last mile delivery sector through sustainable, cost effective technology. More recently, the campaign reached Cincinnati, Ohio on April 22 and will continue in several other cities this year. Building the framework for vehicle electrification and emphasizing the positive impact of zero emissions on our environment, we are witnessing a rapidly expanding base of supporters throughout this campaign and look forward to continuing to market our best-in-class vehicles, while making a benevolent impact to the underserved in those cities.
Recently, we signed an agreement to be a sponsor of FC Cincinnati, the local major league soccer team that is opening its new stadium in May. Our logo will be presented in the main entrance, which will now be called the Workhorse Gate as well as over the electric vehicle charging area. Workhorse’s name in LED lights will also be shown during the home games. FC Cincinnati has the highest attendance of any program in the MLS, with roughly 26,000 fans per game. The reasons for the sponsorship besides the excitement around our MLS soccer team and new state-of-the-art stadium are to introduce potential new customers, employees and suppliers to Workhorse. Our electric vehicle delivery trucks and our truck integrated autonomous delivery drones. To give a quick update on our pandemic procedures, we continue to follow CDC and local health department guidelines for cleaning and PPE. As a result, we are pleased to share that we have only had 2 new cases of COVID-19 in the last 4 months.
Let me now turn to our Aerospace division, where we have appointed John Graber to the newly created position of President of Aerospace Operations. John has previously been involved with leading the development of our HorseFly program since March 2020, but will now take on an even greater responsibility of overseeing our Aerospace division. He brings decades of C-suite level experience at public and private companies engaged in the aerospace industry and I am pleased with the impact John has already had and the value he will continue to bring to the table.
Let me now turn it over to John to give you an update on HorseFly progress. John?
John Graber
Thanks, Duane. Good morning, everyone. I would like to provide an update on our Aerospace division and our HorseFly Drone business. During the first quarter, we delivered our first HorseFly system to a commercial customer. The fully integrated system included our HorseFly aircraft, our patented ground support and control systems and especially equipped Workhorse last mile delivery truck that seamlessly supports drone operations. Additionally, our Aerospace team successfully completed ASTM testing for our Parachute Recovery System, or PRS for the HorseFly as part of our FAA Certification process. As part of this venture, we partnered with Canadian PRS manufacturer, AVSS. Their team and ours did a great job in designing and demonstrating into core design and functionality of our aircraft and its Parachute Recovery System.
Our team performed the demanding and mandatory 45 ASTM individual flight tests in front of a third-party testing organization in Rome, New York. I am pleased to share that our systems passed all 45 tests on the first attempt. We continued to meet regularly and collaborate closely with the FAA Certification team and our effort to meet all standards of the FAA’s rigorous type certification and production certification processes. We are encouraged by the progress we are making and look forward to improving our product by actively conducting tests and trials to ensure a high-quality offering. Furthermore, we have also recently joined the Northern Plains UAS Test Site BEYOND program, which is intended to ultimately accelerate certification progress and expand drone capabilities. As the FAA and commercial organizations work closely together to enable drone operations in the national aerospace system, programs like BEYOND are kick-starting the industry, bringing us closer to normalizing unmanned aircraft system usage. We have a bright future ahead in our Aerospace division and for our HorseFly drone business. I look forward to updating you again when we have more to say and the time is right.
I will turn the mic back over to Duane.
Duane Hughes
Thanks, John. As you all are aware, the U.S. Postal Service issued a press release announcing that it had made an award under the NGDV contract to a competing finalist. This is not the result we had anticipated nor hoped for and we appreciate the interest of the many stakeholders who have reached out to better understand the decision-making process as well as any potential next steps. We continue to operate under our NDA with the U.S. Postal Service. As previously disclosed, we requested pursuant to the publicly provided bid process rules, additional information from the U.S. Postal Service and had a scheduled face-to-face meeting with the USPS on March 3. We are continuing to evaluate our options and intend to continue to explore all avenues that are available to us. We appreciate your patience in the meantime as we allow this process to work through its proper course.
Operator, please provide the appropriate instructions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Greg Lewis with BTIG. Please proceed with your question.
Greg Lewis
Yes, thank you and good morning. Duane or Steve thanks for the updated vehicle guidance. Just kind of curious, if you could give us like a real-time update on what production looks like and I guess how we should be thinking about the ramp to march towards that of 1,000 vehicle production as we kind of move through the year?
Steve Schrader
Greg, this is Steve. So, thank you for the question. Yes. So, production is going on right now and I would think of the ramp from a standpoint of the caveat is the supplier and logistical issues that are going on both now and probably even going in the future of the rest of this year is that if you look at the 1,000, I think you could probably break it down into percentages of 10% of the 1,000 being in the second quarter, 30% in the third quarter and then 60% in the fourth quarter.
Greg Lewis
Okay. And then just touching on that a little bit, when you talk about issues in the supply chain, I mean, clearly, they have been well publicized. What should we be looking for as kind of the year plays out, like what should we be thinking about this summer or in the early fall to think about the potential hiccups in that rate?
Steve Schrader
I think what we have experienced for the most part has been less kind of the some parts being short for more of the logistical issues of actually receiving them on time. So, I think it could be anything. And I think all production companies are really experiencing the same thing as we are is it could be any part that kind of comes up and is short or is not received on time. So – and any part can slow down the line. So, it’s hard to predict what it could be going forward. So – but we are going forward. And I think that’s why we are kind of stepping into the second quarter being 10% just to kind of see how some of these supply and logistical issues kind of play out.
Greg Lewis
Okay, great. And then just one more for me on the deliveries and you mentioned the comments about Pride potential taking delivery of vehicles earlier, as we think about Q1, those handful of vehicles any color on that? Were all those deliveries to Pritchard or were there other customers embedded in that as well?
Duane Hughes
This is Duane, Greg. Thanks for the question. I really appreciate it. No, all of those vehicles were delivered to Pritchard Automotive. And I am going to call it the pool where those vehicles are being, I am going to call it domiciled and going in for up-fitting and so on. Of those 38 – of the 38 we have built to-date or since the end of the first quarter for the most part, I would tell you that a number of those as we said on our call, will go to Pride. We are thinking a handful right now, but that could be changed based on their needs going forward as well.
Greg Lewis
Okay. Thank you very much, everybody.
Duane Hughes
Thank you, Greg.
Steve Schrader
Thanks, Greg.
Operator
Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Colin Rusch
Thanks so much, guys. With the strategic announcement this morning, does that change your go-to-market strategy with the existing portfolio? Obviously, the UPS relationship with your partner is well-known. So, just trying to understand if that changes how you are going to be engaging with lot of customers around the existing portfolio?
Duane Hughes
Thanks, Colin. Appreciate the question. This is Duane. Yes, we are super excited obviously about this relationship with the JBP Co & Companies for a lot of reasons, right. We believe because of who they are in this market, the strengths that they bring to this market, that gives us further credibility, right, not to mention extends our capability as we move forward. So, the relationship is going to take a multifaceted approach. In the comments I made, we talked about building together the next generation delivery vehicle, but we are really looking at the overall segment of last mile, of course and that includes our drone technology and beyond. So, first and foremost, we think adding a strategic partner like JBP Co. and team that we further strengthen our capability right to bring, not just our existing vehicles, but future vehicles to market and strengthen again, that credibility that others have when we surround ourselves with good partners. So, as you have seen a lot of it and I’ve talked about it earlier, between Belcan and Hitachi internally here, in addition to external partners, I am going to call them, such as JBP Co. and team, we are doing as well as internally by strengthening our team with the likes of the John Graber’s and Ryan Gaul’s, we are really putting all the pieces together that allow us to actually have the opportunity to get the ball over the goal line. So, I would say to you that, yes, there are a lot of companies out there who – and at least this is in my mind that when they recognize what we are doing and who we are doing it with, that gives them further confidence in our ability to actually do what we say we are going to do.
Colin Rusch
Great. Thanks so much. And then just shorter term here just in the next few weeks, as you look at your build schedules and the available inventory that you have on hand, can you talk about kind of the weekly or monthly run-rate where you are operating at right now and how you see that cadence working through the balance of the quarter?
Duane Hughes
So, one thing there, Colin, you were breaking up on us. We didn’t get that whole question. Could you repeat the question?
Colin Rusch
Okay, apologies. Yes. I am looking for the weekly or monthly cadence right now on the production run-rate. Obviously, things are accelerating, but I want to get a sense of kind of where you are at now and how that progresses here through the balance of the quarter?
Steve Schrader
Colin thanks. The way I would look at it, we are trying to kind of get away from so many per day, so many per month. I would look at kind of the 30 that were kind of put out there that we talked about and primarily done in April is very similar for May and June and go back to – we will give the quarterly guidance. Again, I think going back to issues that everybody is having, it’s hard to – it’s somewhat hard for all of us to kind of have give that level of detail. So I’d go back to the 10% in the second quarter, 30% in the third quarter, and 60% in the fourth quarter to be the guide as opposed to kind of weekly and monthly guidance.
Colin Rusch
Okay, perfect. Thanks so much, guys.
Duane Hughes
Thank you, Colin.
Operator
Our next question comes from the line of Craig Irwin with ROTH Capital Partners. Please proceed with your question.
Craig Irwin
Hi, good morning gentlemen. Thank you for taking my questions. So a lot of what I wanted to ask has actually been already addressed. But the one thing, if we look at the numbers you disclosed this quarter, ASP roughly mid-80s and looking at COGS per truck, the roughly 25 that you produced in the quarter, something around $250,000 a truck. Can you – no, we know that this is really just the start-up phase, and there is a lot of extra man hours and engineering content in that cost of goods sold. Can you maybe talk us through the fixed and variable components in there what exactly is the materials content opportunity? And given that you have a new supplier coming online for the batteries, is this going to be a large part of the expected progress on the margin front over the next couple of quarters?
Steve Schrader
Yes, Craig, thanks for the question. So yes, the COGS is high like you said and higher than we would want at this point in time as well, too. So – but there are things that we are doing on the battery front. That will be something that will be lower cost going forward. We have our frame. We have lower cost going forward. But as I mentioned, I think, in the first quarter, the gross margin is going to be negative all this year, and it’s going to be high negative all this year. And it is typically for any manufacturing company, that is starting to go from basically zero to any kind of volume. So the expectation should be a pretty high negative margin all year.
Craig Irwin
But can you talk us through maybe the variable contribution sort of backing out the extra man hours on trucks? I mean if you weren’t starting and if you were just, say, running at a reasonable rate, today, is your material supply chain priced where you would be generating positive margins? Or do you need the benefit of volume to get that out of your supply chain to achieve the positive margins that I know you’re working so hard to achieve.
Steve Schrader
Yes. So Craig, where stand as our, at the end of the day, it’s – that’s the major cost. It’s probably 95% of our cost of goods sold or will be kind of going forward on a target standpoint. So it’s a bomb where we’re at, and it’s – we need material savings, and we need the volume discounts. So we’re at that stage in our supply life where we’re ordering in small volumes. We’re not getting those volume discounts. We’re not getting payment terms like we like yet. We need to line up the suppliers and have feedback quality. We’re doing all that, but we’re doing that at the same time as we’re trying to produce trucks. So yes. So at the end – but going back to your question of what’s fixed and variable, it’s not going to be a labor issue at the end of the day, we got to get our bomb down.
Craig Irwin
Understood. Understood. So then looking backwards, over the last several years, Workhorse has a great fleet of trucks out on the road, millions of miles and experience and we’re just going through the now. This COVID environment made it much worse, but of getting a new generation of trucks out there. Can you maybe talk a little bit about the legacy buyers of your existing fleet of trucks that’s rolling around still today, are many of them coming in and taking a serious look at the potential for orders. What do you feel about the feedback that some of them are giving about the updated designs? And could we see some of these big buyers potentially step in with large purchase orders?
Duane Hughes
That’s a great question. This is Duane. I’ll take the first stab at that. Yes, we do get routine feedback from the legacy guys as well as the newcomers. As you know, we have been really well focused on expanding our reach through these dealer network channels and those things so that we’re not putting all our eggs into one basket scenario, as you know, especially with all of the competition that’s coming out and being introduced. But I would tell you that in our particular segment with 1,000 cube vehicle and even larger, right? We are – I won’t say we’re the loan player there, but we are clearly leading the way in terms of not just vehicles on the road with millions of miles and now the second-generation ready to take to the roads, but we’re also demonstrating the integration of our other technology, whether that’s software-related and/or drone technology, which continues to differentiate us, and we’re making good strides, if you will, in creating this single focused last mile delivery solution rather than just building electric trucks that would be inserted into a fleet’s system. They want much more than just an example of a truck that they charge overnight. They are looking to impact their business overall, so they can truly reduce their operating cost, increase their revenues and ultimately, have that compete – competitive advantage they need to grow their market share. So, that all comes back to providing a complete solution rather than components in that solution. And I think that’s one of the keys that differentiates Workhorse from the competitors today is there – I don’t want to say they are just producing trucks. We are not just producing a truck. We are producing a well rounded set of tools, which allow these fleet customers both legacy as well as the newcomers, right, to compete more effectively in the marketplace.
Craig Irwin
Great. And then last question, if I may. As you guys are looking to put away the 1,000 trucks in your guidance. Can you talk maybe a little bit about geography and the impact of some of these voucher and other awards that are always very helpful to the customers. Do you expect this to be really sort of California, New England, New York centric given the availability of vouchers or are there other geographies that you expect to be particularly strong for you over the next couple of quarters?
Steve Schrader
Craig, it’s a good question. I think that initially, what every – our customers have told us they ideally like to have in California, obviously. And probably New York to some extent, too, but I think we’ve heard California the most is – and I think last we’ve heard is June is the time period that maybe the voucher program will open, just because ideally if you can get a $45,000 credit, you want to take that first. Having said that, Pritchard is all over the place from a standpoint of marketing and gone to 20 different cities and soliciting a lot of interest, so to the extent that California money is not there, I certainly feel that there is interest in a lot of states besides California that will be interested in trying now. And Pride, obviously, it wants to go to Canada in like the big major cities and actually start driving the trucks and market them as well. So yes, if anybody get a price cut, they are going to try to get that with the voucher, but I think there is interest all over North America here.
Craig Irwin
Understood. Thanks again for taking my question. Congratulations on the progress on the productions side.
Duane Hughes
Thanks, Craig.
Steve Schrader
Thanks, Craig.
Operator
Our next question comes from the line of Mike Shlisky with Colliers Securities. Please proceed with your question.
Mike Shlisky
Hey, good morning guys. Just wanted to first follow-up with on – with something that Craig asked us if I’ve put more detail on that, can you give us update us to your backlog as of now? Have you gotten any major or recent sized orders during the quarter? And maybe secondly, with the Pritchard program going from place to place – doing a lot of test drives and demos, how you have they seen any orders for their vehicles for some of the more local businesses, just kind of numbers around some of the conversion activity in the quarter would be helpful?
Steve Schrader
So, we didn’t receive any new orders from like Pritchard and pride or UPS during the quarter, having said that, Pritchard has been around to all those cities that we talked about. They have given us all positive reports. So I don’t think they want us to announce exactly kind of what they are doing with their customers and how they are approaching or how they are going to deliver them. But again, I would say both Pritchard and Pride are not only eager to get trucks and get them out on the road. To get them out and start marketing, Pride, for example, really only want a truck starting in July, but they asked them for 3 months early to actually hit the road with them. So we anticipate, in both cases, that to get them out on the road and that will drive not only their orders, but also Pride future orders from us down the road.
Mike Shlisky
Okay. And then I wanted to ask about the deal you announced with Poindexter. Can you give us some of the terms behind that deal? Is it going to be a profit-sharing arrangement once a vehicle is made and do you know if Poindexter or Morgan Olson is still free to work with other EV companies for their efforts?
Duane Hughes
I guess this is Duane. I’ll go two ways with that. One is, yes, they’ll still be able to work with other manufacturers. It’s important to their business that they are able to be – I’m going to call it chassis agnostic, right, going forward so that they can meet the needs of their customers. But they are looking at their future of electrification and beyond electrification, it goes back to what I said earlier in my comments about building a complete last mile delivery solution as opposed to just a truck that meet certain needs in that marketplace. The other part of that is this collaboration or the strategic partnership between the two companies can take on different looks and feels based on the mission at hand. As I mentioned collaborating together to build the next-generation delivery vehicles, right and I say vehicles plural because, again, that’s more than just a truck. It can be truck and drone technology, truck and droid and beyond, right, but it also allows us to expand upon that relationship with a different pipe project, which would be administered under different type contract for, whether it’s contract manufacturing or other supply chain-related issues where the two companies putting their strengths together to I’ll say, optimize or maximize the opportunities for the supply chain, the maintenance channels and all of the things that exist today. So the relationship isn’t just a single dynamic. It’s designed, and the current agreement that we signed is – allows it to be a very broad individual contract based ability to do different projects over time.
Mike Shlisky
Okay. I also wanted to ask about kind of what caused you to add an additional layer of management here when you hired the two group presidents at this point, you already have a COO. I’m kind of curious who reports to whom and what are they going to add? Is it more of a sales focus or is it more of an engineering focus? What do you hope to accomplish by having an extra layer? I guess what part are they going to be covering of the process here?
Duane Hughes
Yes, great question, and I’ll start that answer and if Steve or others want to jump in, they can. But the reality is, right, we have Rob, our COO, who is as our – in effect, our lead engineer. We have lead engineers and so on our projects, but giving Rob an opportunity to I’m going to say, the further focus directly on engineering and our 3 and 5-year plan that looks like what does our technology plan look like? What are the products we’re talking about? These relationships with companies like JBP Co. They require a high level, hands on understanding of what are the platforms that we need to be building for the future. Adding John and Ryan, of course, are a particular focus because of their expertise in John’s case, of the aerospace world his years as a pilot. The year is under his belt with our current aerospace team and our ability to actually bring the HorseFly to market as a one integrated product with trucks, but perhaps more importantly, away from that integration as a stand alone product, which it is designed to be as well. So John brings that years of C-suite level and aerospace background that he can navigate through the FAA type certification process and get this product to market much more quickly than a group of us together splitting those responsibilities. The same goes for Ryan. Ryan goes even deeper in the truck side of understanding not just supply chain and production, which is our number one task. And I think Ryan might have mentioned it in this call, he started his focus on Union City in our production facility and getting it up to speed more quickly by working with our other partners like Hitachi and Belcan and those guys. That Ryan brings the ability to strengthen the sales side of things, the marketing side, the M&A side and so on. But again, his background in automotive, his decades of experience in automotive and his ability to navigate the supply chain and understand and having been through issues in the supply chain before, just gives us another level of expertise, where both these guys have P&L responsibility. They both report directly to me as CEO. And we will actually improve our ability to do what we are committed to do for our shareholders and our employees and all of our investors as a whole.
Mike Shlisky
Just a follow-up there. So it sounds like you have got some more hires to come given the growth in the production. Should we be looking at increases in some of your structural costs, your R&D, your sales and marketing costs, along with production over the next few quarters? Can you any kind of ranges should be looking at for your overhead costs for the rest of the year here?
Steve Schrader
Yes. I think if you look at like the past quarters, you’ll see increases both in R&D and SG&A. As we’ve talked about, we’ve hired – we went from 100, I want to say, at the end of last year to about 240 for people now, total in the company. And there’ll be additional hires. But I think for the most part, a lot of them have been hired at this point. But – and there are some key positions still fill. But yes, we’re stepping it up a little bit, both on R&D and SG&A.
Mike Shlisky
Okay, guy. Again, thanks so much. Great work.
Duane Hughes
Thank you, Mike. I appreciate it.
Operator
Our next question comes from the line of Chris Souther with B. Riley. Please proceed with your question.
Chris Souther
Hi guys. Thanks for taking my question here. Maybe you could just provide a bit more color on the JBP Co. agreement and what did that mean. So it seems pretty broad-based. Potential for you guys to help them out with the chassis and other areas and then to help you with the body. But I’m just kind of curious you mentioned development of next-generation vehicles here. Do you have kind of a time frame where you think that you’re going to have kind of vehicles ready to go with them? Is this a 2022, 2024 type story, maybe kind of just framing where you see the opportunity kind of developing? Obviously, there is multiple kind of projects you could be working on together, but I want to get an idea of time lines that you guys are looking at there?
Duane Hughes
Well, yes, I would tell you just from the sense of competition in the marketplace, we are always looking to, I will say speed to market is an issue. Now at the same time, quality of what we deliver to the market is all important, safety and quality and reliability. So the timing on that would be based on how do we integrate each other into our current future plans as they exist today and how do we adjust or navigate through those plans that we would have had going forward and they have going forward? So time is of the essence from a competitive perspective, but rushing something to market without having a complete, I’m going to call it complete system or the quality that we’re looking for is something that we’re seeking to stay focused on. So we don’t shoot ourselves in the foot, as they say. Time-wise, again, we’re not talking multi-years out. We’re talking about how quickly can we do this together and it’s not just build that new product, as you said right. There are many fronts on which we can work together. And this is much more than just being a chassis provider with a body company that’s putting bodies on chassis. This is looking at that 3 and 5-year business plan together. The technology is going to be required 3 years out, 4 years out, 5 years out and beyond and how we put ourselves together in a position for success going forward.
Chris Souther
I understood. Definitely seems like a great partner from that respect, just given their size and scope of their operations. So maybe you talked about 1,000 vehicle production target for this year and get the cadence. Should we expect deliveries to have a similar total number and cadence? And then just maybe touching on kind of the customer basis, is all of 2021 sold out with key customers, Pritchard and Pride, maybe UPS in there. Are there other customers you need? Obviously, the backlog stands at much more than that, but I’m just kind of curious on the timing of the order backlog is some of the 2021 is not sold out at this point or how you’re speaking to customers as far as potential new orders, the timing?
Steve Schrader
Chris, yes. So I would say the cadence for delivery is going to be a similar cadence for production. And I think from a standpoint of the backlog and how it compares to the production scheduled deliveries. Yes, we – let’s take Pride, out of it to some extent because there is a multiyear order. If you take Pride out, we had 1,800 backlog. And so yes, the 1,000 will kind of be trying to into that backlog of 1,800 and but we have openings, I would say, in 2022, and I think we’re actually trying to use that to a sales advantage because I don’t think there is a lot of companies right now that can say, look, you want to get on the schedule, you need to get on the schedule now, and you can get production and delivery in 2022.
Chris Souther
Okay. That’s very helpful. And then just the last 1 on – you mentioned first HorseFly to a customer, who’s the customer you’re working with there? And kind of what is the scope of the program, I assume for kind of a trial pilot type program there?
John Graber
This is John Graber. Thanks for the question. Appreciate it. We’ve got NDA with the customer. So I don’t think we can define them, but there is a lot of video out in the marketplace you can go see of what we’re flying and how we’re flying, and that’s representative of what we are doing.
Chris Souther
Okay.
Duane Hughes
Okay. And there are other customers, too, Chris, I’ll add that there are other potential customers I should say we’re talking to right now that our blue-chip customers as well on the drone and drone truck side.
John Graber
Yes. I think it’s fair to say that the UPS guys and Verizon guys used our product and the CES keynote address. That’s all public record. You can go see that and since that video appeared, we have gotten increased interest in our integrated solutions in the commercial side of things.
Chris Souther
Okay. That’s great to hear. I will hop in the queue. Thanks guys.
Duane Hughes
Thanks, Chris.
Operator
Our next question comes from the line of Craig Shere with Tuohy Brothers. Please proceed with your question.
Craig Shere
Good morning. Expanding on Craig’s gross margin question, understand positive margin is a function of volume and staffing and supply chain economics. Given you envision healthy negative margins throughout the year, but production might ramp up to 200-plus vehicles a month by the fourth quarter. Do you envision staffing and scaled vendor orders driving you to breakeven gross margin possibly by mid next year?
Steve Schrader
Yes that is our hope. From 2022 is that sometime midyear that – and certainly, I think we have to get over 200 per month to kind of get to that level of breakeven. So – but again, it is all – not all, but it’s primarily farm-related. And so we have to have orders out there and probably orders with different vendors of 2,000 and to 3,000 and looking down the road. So yes, I mean, I think our hope would be sometime next year in 2022, we would be breakeven. I can’t tell you if it’s mid-2022 or not, but certainly in 2022, that is certainly our hope some months.
Craig Shere
Great, thank you. And then kind of back to the HorseFly order. I understand you have a non-disclosure can you elaborate on whether it’s a North American order and whether you’re getting material interest outside of North America for that product?
John Graber
It is North – this is John Graber, it is a North American order. We have not pursued anything out of North America yet. We’re in, as I think everybody knows, the certification pipeline with the FAA and our plan is to gain that certification, then go get – certification, then go get a Transport Canada and the dominoes begin to follow based on what the FAA allows us to do. So we haven’t looked overseas yet. I’m comfortable that when we do, the product will find a home.
Craig Shere
I got it. I guess I was thinking reverse like with biotech, sometimes when things aren’t approved by the FDA in America. Some overseas markets will take it sooner rather than later. But it sounds like it’s the reverse with aviation that you need to start with the FAA?
John Graber
No, I won’t tell you you’re wrong about that, a concern in our industry on the Aerospace side is whether or not the United States will keep up from a regulatory point of view as compared to [indiscernible] or Brazil or Australia or New Zealand, there are nations that are making things faster in this space than we are. We’ve chosen the FAA route because we think once we get it, it opens the doors more quickly around the world, but it’s an absolutely fair concern.
Craig Shere
And one last question on that. Do you have any sense or body language from potential customers as to whether the primary interest is around an integrated platform with EV truck and the HorseFly product or whether the UAV might be more of a stand-alone product over time.
John Graber
So we have – we’ve got a 10-year plan for unit sales. And the way we think about that, I’m not going to get into the total units on this call. But the way we think about it, 35% or so of the product line sales we would build in 10 years would be associated with trucks. And if you look out in the marketplace, you can see that there are tens of thousands of applications for business-to-consumer that the industry is thinking about. There are – report after report that show it being a multibillion-dollar business by 2024, if you look at the FAA’s 2020 aerospace forecast, they said that they cannot forecast the hockey stick that they see in small parcel delivery because they can’t figure out what it’s going to look like. It looks so – I think the word they use is phenomenal. So that’s pretty heavy, and I’m not going to say that we have that robust view. But if you think that there is a market here, and we do. There is not a reason the world that our products won’t have a leading role because we have the capacity, and we’re going to be safe, we’re going to be reliable and we can carry a meaningful payload on meaningful distance.
Craig Shere
Great. Thank you.
Duane Hughes
Thanks, Craig.
Operator
Our next question comes from the line of Thomas Boyes with Cowen. Please proceed with your question.
Thomas Boyes
Thank you for taking my question. I just had one quick one. I noticed there was an inventory write down, like 30,000 or $360,000. Just wondering if that was from obsolescence or if you could get any color on that? Thank you.
Steve Schrader
Yes. That was from obsolescence. You go through different design prototypes and some don’t always work out. And so that’s really where it came from.
Thomas Boyes
Got it. Is that specific to body or technology as far as battery? Was there any breakdown there or color?
Steve Schrader
It was kind of both of those issues, certainly related to kind of the C-1000.
Thomas Boyes
Okay, great. Thank you.
Operator
At this time, this concludes the company’s question-and-answer session. If your question was not taken, you may contact Workhorse’s Investor Relations team at wkhs@gatewayir.com. I’d now like to turn the call back over to Mr. Hughes for his closing remarks.
Duane Hughes
Again, I’d like to thank everybody for joining us on our call today and for all the great questions from the analysts that followed. I especially want to thank our employees, our partners and all of our investors for their support. We appreciate your continued interest in Workhorse and we look forward to updating you on our next call. Thank you, operator.
Operator
Thank you for joining us for Workhorse Group’s first quarter 2021 earnings conference call. You may now disconnect your lines.
