Fraser Atkinson: Well, I think it’s a combination but infrastructure is less of an issue on the commercial side in that it’s a simpler approach in some cases compared to school buses where they’re looking at everything and anything that we’re well into the particular vehicle that is going to meet their duty cycle requirements and the combination of payload and what they want to achieve. But then when you start looking at the infrastructure, it’s not practical to be charging between the morning and the afternoon run because they’re on peak rates. So they’re looking in that instance that, okay, we need load management, we need scheduling, we need this, this and this and that isn’t all dialed in at the front end. You don’t want to be making changes on the fly.
And that’s a big part of within school buses is managing all of that. And in the past year, we’ve become intimately involved with the charging. And today, we don’t have a charger as a solution but we need to be involved with that in order to reduce the amount of time that is spent on sorting out infrastructure issues. So that’s number one, the biggest. And then the second is just getting the platform nailed down and committed to without scope creep, where they decide, “Oh, let’s have a look at B2G.” And that’s something that you don’t want to be adding on or making a decision at the back end in terms of integrating your vehicle on a B2G solution. That needs to be part of the initial dialogue in scoping out the platform. So that does enter into the process with that particular sector and does cause some additional delays.
But I think the key is that the programs all have requirements. The EPA funding and the selectives that have been awarded funding under that program, the way the rules are set is they need to have their vehicles delivered by October 31, 2024. And that seems like it’s out there but a property that has up to the 25 MAX that is that some properties were awarded, you don’t deliver 25 in a month, that’s spread out over several quarters. So all of that means that, we believe, that the whole process will be compressed over the next 6 to 9 months in terms of what we have seen.
Operator: Next question comes from Chris Souther of B. Riley.
Chris Souther: Maybe on the Class D school bus side, it looked like just the one delivery of school buses was a Nano and it sounded like the pipeline is certainly picking up on the school bus side. But I just wanted to see if you could give any color on how many wins you think you’re going to have on the EPA program side. Do you have any firm orders yet through that program? And then just wanted to get a sense of like the inventory strategy for the school bus size flat with 35 in kind of finished goods and you were planning that’s going to ramp in West Virginia. I just wanted to get a sense of kind of the cadence over the next couple of quarters, if you could provide a little more color.
Fraser Atkinson: Well, that’s a great combination of questions and thanks for that. Starting off with our most recent quarter, the selects for the EPA program were literally announced during our most recent quarter that we’ve just announced. So given that you have to get your contracts signed and deliveries out, I don’t think anybody was in a position that they delivered product by December 31, 2022 under that EPA program. And it was an interesting anomaly in that people that had submitted or were eligible for other forms of funding, there in terms of VW trust funding in a number of states or in California, all their various programs. We’re often waiting to see, well, can we do better? We got $340,000 under this Air Quality Management District but maybe we can get $375,000 under the EPA program plus $20,000 for our chargers.
So we saw that a lot in the fall of last year. Now we’re at a point where everybody has got their best shot and they do have their mandate. So we’re now in a position we’re able to move forward on those. In terms of what our success rate is or what our expectations, we will be announcing the deals as we go. There’s a number that we fully expect to get announced and be delivering over the next couple of quarters, as I say, out of current inventory. So both for the Type D as well as the Type A Nano BEAST which will certainly be incremental to the sales growth that we enjoyed.
Chris Souther: Okay. So are most of the pipeline customers you talked about, frankly, other programs that are now potentially kind of moving forward after they didn’t get EPA or how many kind of EPA customers are in that mix of pipeline customers you called out?
Fraser Atkinson: The over 30 deals that we referenced, they’re spread out. California has a big chunk of those is significant as well as other state programs or other state contracts. So it’s a pretty good cross. We have a pretty good cross-representation of deals and certainly, no one program is the dominant player within that pipeline.
Chris Souther: Got it. Okay. Maybe just the cadence of the workhorse deliveries. It sounded like some of the logistics challenges are improving here. And their commentary is sort of suggesting they’ll take as many as they can get. So I think your MD&A had a hundred that were in process and delivery and another hundred that have been completed by contract manufacturer in Asia. Should we think about quarterly run rate as approaching 100 and staying around there? Or are you saying, hey, we might be able to do 200 a quarter, if not March, kind of the next quarter after that?
Fraser Atkinson: Well, I think we’ll be sticking to a quarter-by-quarter communication and not getting ahead of ourselves and that’s in part because of supply chain and shipping and logistical issues and moving larger volumes. That’s been on us, not Workhorse in terms of getting the numbers up. Going from 10 to 100 is a whole different proposition as an organization. And so we’re building our systems and our processes and our team in order to accommodate and to be able to do that and then repeat that on not just quarterly but monthly and in terms of the regular delivery. So no, we’re not in a position to be laying out on a quarter-by-quarter basis what those anticipated or expected deliveries are. But I would agree with their commentary that this is on GreenPower in terms of ramping that up to meet the demand.
Chris Souther: Got it. Okay, that all makes sense. And maybe just my last one. It’s great seeing the revenue start to ramp here. I wanted to see if you could just talk a little bit about the margin front. It makes sense, the kind of mix is going to be the key driver for gross margins. But can you give us any sense of what EBITDA breakeven looks like, given it seems like you guys are beefing up some of the OpEx lines to kind of help with the growth here? Should we expect kind of flattish gross margins as workhorse continues to be kind of a big chunk? And then where do we get kind of more leverage to hit positive EBITDA? Is that kind of calendar year 2023?
Fraser Atkinson: Well, I’ll start at a high level and then I’ll turn it over to Michael for more granularity on your question. At a high level, it’s important to note that the expenses that were reported in our December 31, 2022 quarter, they include some of the initial start-up for our West Virginia facility which we’re not even into the manufacturing, let alone delivery and revenue recognition out of that. And we also have with Michael Perez and his group with the school bus team that we’ve been incurring costs to get our dealer network in place to get our team out and engage with the extent of our sales pipeline as well as the delivery team for the nearing sales that we’re pushing at the front end of that sales pipeline. So all of that we’ve incurred without any of the requisite revenue that will flow from that activity.
And likewise, with Clause stepping in with the commercial group or the commercial vehicle group is that he has undertaken a number of initiatives as well as building out a dealer network. And so some of those early expenses aren’t represented by any sales now but will be realized down the road. So at a high level, we are continuing to invest in the capacity and the capability of a company that is a whole lot bigger than 100 vehicles in a quarter. And so that’s represented in what we most recently reported. But on that, I’ll turn it over to Michael for any additional comments.
Michael Sieffert: Thanks, Fraser. I think Fraser described this very well is that we are investing in our business. We’re building out a platform. And as we do that, you’re going to have quarters like we’ve just experienced where you have an increase in those step costs and you don’t yet have the, we’ll call it, operating leverage from the gross profit margin sort of trickling down through those cash expenses. However, that being said, we’re certainly happy with the trajectory. I mean this is our highest revenue quarter ever. At this run rate, we’re approaching on a quarterly basis, annualized $50 million revenue which I think is a big step for us. And as we absorb some of these new investments and build out the business across the country, I mean we’re really potentially just getting started here.
So, we’re optimistic about reaching those higher sales levels that will allow us to generate positive EBITDA. But at this point, we’re not in a position to talk about when that may be, although we’re certainly happy with how this is progressing.
