Workhorse Group Inc (WKHS) 2022 Q3 法說會逐字稿

Ladies and gentlemen, greetings, and welcome to Workhorse Group's Third Quarter 2022 Investor Call. As a reminder, this conference call 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 now begin.

Thank you, Rob. Good morning, and welcome to all of you joining us for today's third quarter 2022 results call. Before we begin, I'd like to note that we've posted our results for the third quarter ending September 30, 2022, by a press release. You can find this release as well as the accompanying presentation on the Investor Relations section of our website. We also filed our third quarter Form 10-Q this morning. We will be tracking with the posted presentation during the call, so please follow along either from the link in the press release or through our website directly.

And with that, let's get started. Joining me on today's call are Rick Doug, our CEO; and Bob Ginnan, our CFO. We have a straightforward agenda today, which is found on Slide 3. Following my opening remarks, I'll hand it over to Rick, who will give you an update on the progress we've made on our strategic and operational priorities for the third quarter of this year. Bob will then walk us through our financial results for the quarter and cover our 2022 guidance. Then we'll take your questions.

Our disclaimer can be found on Slide 4. Some of the comments that we made today are forward-looking and, therefore, are subject to certain provisions and are subject to risks and uncertainties. You can find the full disclaimer statement in our Form 10-Q and other periodic filings on file with the SEC as well as in today's press release.

I'll now turn the call over to Rick Dauch. Rick?

Thanks, Stan. Good morning, everyone, and thanks for taking the time to join us today. We had a very productive third quarter here at Workhorse, and here are some of the highlights on Slide 5. Let me start with a brief summary of our key hires during the quarter. Last quarter, I mentioned that hiring an experienced and capable commercial vehicle sales team was a critical focus area for us, and we did just that, and I will cover those details shortly. Additionally, we continue to strengthen our operating teams in both commercial vehicles and aerospace, hiring a new plant manager at Union City and bringing on board 2 new vice presidents in Aero, one in flight operations and technology and another manufacturing supply chain. These individuals each bring more than 25-plus years of relevant industry and technical experience to their roles. We also made important additions to our finance, IT and HR staff, bringing on experienced professionals to improve our back-office administration processes and systems.

On the product portfolio front, I'm extremely pleased to report that we delivered our first W-4CCs and made progress across our entire product road map. Getting safe, reliable vehicles in our customers' hands was an important milestone for the Workhorse team. Importantly, the W5 6 program remains on schedule and on budget. We also completed the necessary preparations for executing the Trophos vehicle launch here in Q4, and we did experience a setback in testing on the C1000 vehicles and I will provide details about this a bit later. We also made significant strides across several other major initiatives, including upgrading and transforming our facilities while expanding our engineering and testing capabilities. In Aerospace, we are in the process of doing final flight testing for the Horsefly and we developed a new platform for humanitarian assistance and logistical operations, what we call Halo, in less than 120 days. We are executing on our government grants and are developing and acquired the necessary equipment and skills to move into drone production in 2023. Today, we are introducing our stables and stalls initiative. We believe this effort is essential for workforce to better understand the challenges and needs of our fleet customers as they make the game-changing transition to electric vehicles. Finally, we continue to address legacy issues and remove overhang and uncertainty from the business, including the recent proposed settlement of a class action lawsuit, which was announced after the quarter end. This is a very important step for us here at Workhorse.

Turning to Slide 6. Throughout this past year, we have been focused on executing our stabilized fixed and growth strategy, which starts with building a capable and experienced leadership team. We have hired nearly 100 associates across all areas of the organization, including sales, engineering, operations and administrative functions. We believe having a cohesive team of hard-working ethical people with relevant industry experience who are team first players is absolutely critical to our transformation and long-term success as a company. To that end, during the third quarter, we hired our new Vice President of Commercial Vehicle Sales and Marketing, Kris Amy. Simply put, Kris is a commercial truck sales professional. She spent the last 13 years with Mobil Truck and is responsible for both the Western region and for electromobility sales across all of North America. She hit the ground running and has already hired 3 regional U.S. sales leaders who bring a combined 50-plus years of commercial vehicle sales experience to Workhorse. We also hired Renee Stevens as our Director of Data Analytics and Field Services, who brings to us more than 30 years of OEM and data analytics industry experience. These positions were essential for us to fill as we continue to build up our team to become true pioneers in the transition to commercial EVs. I would say that for now, with the exception of a few specialized position requirements such as warranty and parts services, we are finished with the hiring of senior level functional engineering and operational leaders here at Workhorse. Our focus now shifts to adding to the capable and motivated plant teams in our CV and Aero factories located in Union City, Indiana and Mason, Ohio.

Turning to Slide 7. We continue to make excellent progress on our revised product road map plans. Starting with our Class 4 offerings, the W 750 and the W4CC. As a reminder, these vehicles serve to fill a critical gap between our limited production C1000 product and the future production of W-56 and W34 platforms. The strong initial customer interest for these vehicles reinforces our belief that our products are differentiated in today's EV market. As I mentioned at the top, we delivered our first W-4 CCs during the quarter, and we are ramping up production and delivery throughout the remainder of 2022. We delivered 10 W 4CC vehicles during the third quarter and another 13 so far in the Q4. The W4CCsClose cousin, the W75-package delivery van remains on track to complete initial pilot build production builds in Q4.

Turning to the W 56, which we introduced 3 quarters ago as the first new workhorse fully designed and purpose-built chassis platform. This vehicle will serve the Class 5 and 6 delivery step band and truck market segments. We are continuing to execute on our plans for the W-56 program and are on track to begin production of vehicles in Q3 '23. About 90% of the platform building materials has already been sourced to proven Tier 1 suppliers, the vast majority located here in North America. Early mules were assembled in Wix and Sharonville in Q3. We expect production in tape vehicles we built in Union City in Q4, customer demo vehicles to be delivered in Q2 '23, and we will complete both FMVSS and durability testing in Q2 of 2023 as well.

Moving to the C1000. Last quarter, we completed the redesign of the front suspension, which was intended to resolve the engineering problems on the platform. However, during fully loaded durability testing in the third quarter, a rear suspension component proved to be insufficiently designed. We are now in the process of procuring the redesign part. As a result, we now expect to have durability testing completed during the fourth quarter. Based on testing results, we will then decide by the end of the year as to whether we prepare the existing vehicles and restart C1000 production or not. While this timing delay is frustrating, it's far more important for us to have safe and reliable vehicles on the road that our customers can rely on to do the job every single day.

Moving to Slide 8. I think that one of the most significant differentiators in our industry today is the ability to produce OEM quality vehicles at scale from a full-size and modern plan. You have heard me speak about our Union City plant improvements for over a year now. Today, I'm announcing that the renovated and expanded workforce Ranch is ready to run. During the quarter, we completed the transformation of the unicity complex, upgrading the warehouse and completing the test track. As we've discussed, we've truly transformed the facility into a world-class operation with open, flexible manufacturing space and plenty of room to grow. The plant started initial production of Class 4 vehicles in the corner, is finalizing layouts for W5 6 production scheduled to begin in Q4 of 2023. We are actively adding hourly staff each week to meet current and future build schedules.

We are also on track to assemble vehicles in Union City for Tropos Technologies as part of a 3-year contract manufacturing agreement beginning in Q4 of 2022. Volumes for final summary of these Tropos vehicles for the U.S. market are expected to reach 2,000 units per year once production ramp-up is complete. I hope that many of you are able to join us for our Analyst Day on December 7, 2022, to see firsthand what the team has been able to do in reinvigorating our foundational asset, the Workhorse Ranch. We have also completed the upgrades to our design and technology center in Wiksan, Michigan and have recently moved into the new prototype and testing center here in Sharonville, Ohio.

Moving to Aerospace on Slide 9. On last quarter's call, we provided an overview of the aerospace markets where we aim to compete for business, so I won't go into those details again today. I will reinforce, though, that we remain optimistic about our capabilities and opportunities in package delivery as well as the mapping and sensor-based segments of the rapidly growing commercial market for drones. Our Horsefly platform, which can deliver 10 pounds and 10 miles, a payload range capability, we believe, is market leading, is nearing completion of final flight testing and has multiple last mile customer demonstrations scheduled during Q4.

We continue to fly in support of the U.S. Department of Agriculture, providing field monitoring, data procurement and analytics as part of projects in both Mississippi and Arkansas. We are also actively working in 2 additional states on different drone applications and expect to announce another new state level grant later this month.

Based on strong customer demand, we have also developed a new family of drones to meet emerging customer requirements to humanitarian assistance and logistical operations. This robust drone, which can fly on automatic and manual control is also in the final flight testing. We are in conversations with potential customers about feeling this product, both here in North America and also in Europe.

Moving on to a new initiative here at Workhorse on Slide 10, which we're excited to announce this quarter. Today, we are introducing Stables & Stalls, a fleet electrification platform that provides charging and services to EV fleets. Fleet electrification is a major unmet need in the last-mile delivery industry. It's extremely expensive and difficult for small fleet operators to transition to electric vehicles, ensuring access to charging infrastructure is a must for them. So rather than joining the local crowd complaining about the lack of charging infrastructure, Workhorse has decided to take a more proactive approach and help with this unmet industry need. As part of this platform, we have leased our first Stable, a maintenance location here in the Greater Cincinnati area in Lebion Ohio. This week, we are installing 10 Level 2 chargers to Stalls for use in support of our own last mile delivery fleet. We believe Stables & Stalls will be an important growth opportunity for us that will support and complement the work underway across our other family of products.

In connection with Stables & Stalls, we have purchased and began operating a FedEx ground delivery route in the Greater Cincinnati area with the approval of FedEx. We are starting by serving the route with 10 company-owned internal combustion engine trucks. Our team has been delivering packages of all shapes and sizes to customers since July. In the picture on the slide, you will see that we have already started to electrify the fleet. That is our first W 750, which was just wrapped with a FedEx logo and colors and had its shelving installed last week. We expect to convert our entire fleet to 100% electric vehicles by the end of Q2 2023. This is an exciting opportunity for us. We have established key business partnerships that will enable us to capitalize on this opportunity and continue expanding in this market. One of our key deliverables for this effort will also be the data collection and field experience that will allow us to develop more efficient business model to enable small fleets to economically transition to EVs in the near future.

With that, I'll now turn the call over to Bob to discuss our financial results.

Thanks, Rick. Let's turn to Slide 11. Our results demonstrate the steady progress our team continues to make executing on our objectives to strengthen our financial position and operations. Looking at the income statement. Sales net of returns and allowances for the third quarter of 2022 were recorded at $1.5 million compared to a negative $600,000 in the same period last year. The increase in net sales was primarily due to an increase in the volume of commercial vehicle sales and the launch of our Stables & Stalls initiative.

Cost of sales decreased to $9.5 million from $11.5 million in the same period last year. The decrease in cost of sales was primarily due to a $1.4 million decrease in inventory write-downs and a $1.2 million decrease in consulting and warranty expense. The decrease in cost of sales was partially offset in the increase in costs associated with the vehicles sold during the period.

SG&A expense increased to $34.8 million from $10.6 million in the same period last year. The increase was primarily driven by the $20 million legal settlement expense, which is net of $15 million in insurance proceeds and an increase of $3.8 million in professional and legal services related to the securities and shareholder derivative litigation. Additionally, there was an increase of $3.1 million in employee compensation and labor-related expenses from increased headcount, noncash equity compensation and the appointment of our new leadership team.

R&D expenses increased to $6.1 million from $2.8 million in the same period last year. The increase was primarily driven by an increase of $1.6 million in employee compensation and related expenses due to increased headcount. Additionally, there was a $1.1 million increase in consulting and prototype expenses related to the continued development of our HorseFly W-56 and W70-vehicle programs.

Net interest income was $27,500 compared to $18.6 million in the same period last year. The decrease in net interest income was primarily due to a $2.6 million increase in fair value of the 2024 notes during the 3 months ended September 30, 2021, as compared to no debt during the 3 months ended September 30, 2022. Additionally, contractual interest expense on 2024 notes for the 3 months ended September 30, 2021, was $2 million as compared again to no debt for the 3 months ended September 30, 2022.

Other income was $13.4 million compared to a loss of $77.1 million in the same period last year, which was attributable to unfavorable changes in fair value of the company's prior investment in Lars town Motors core, which was sold entirely in Q3 2021. This was offset in 2022 by the gain on the sale of C1000 related inventory. Net loss was $35.4 million compared to a net loss of $81.1 million in the same period last year. Loss from operations for the third quarter was $48.8 million compared to $25.5 million in the same period last year, driven by the legal settlement.

Turning to Slide 12 to discuss our balance sheet. As we mentioned last quarter, we are debt-free following exchange transaction in Q2. As of September 30, 2022, the company has approximately $120 million in cash and cash equivalents. It's also worth noting that our ATMs in place, though we did not utilize it during Q3. We now expect our capital expenditures to upgrade our facilities in Indiana, Ohio and Michigan to be between $15 million and $20 million in 2022. This is a $5 million adjustment downward at the top of the range since the last quarter, primarily driven by timing and other effective use of capital resources. I do want to call out 2 additional items on the balance sheet from Q3. First, you'll see we've recorded a $35 million liability for the legal settlement, which is in part offset by $15 million insurance receivable. This gets us to the $20 million stock portion of the proposed settlement reflected in the income statement. And then Tropos, we have booked a full $10 million equity investment we made in the company and have also reflected a $5 million contribution to the noncash consideration, representing a deposit from tropism future assembly service as deferred revenue.

Slide 13 covers our guidance. We are reaffirming our revenue guidance expected to generate between $15 million to $25 million in revenue for calendar year 2022. With the C1000 testing situation, we are reducing the number of vehicles we expect to manufacture and sell for the year to between 100 and 200, assuming current supply chain lead times remain unchanged.

With that, I'll now turn the call back to Rick to wrap up.

Thanks, Bob. I want to briefly discuss our Q4 priorities on Slide 14. First, we must continue to execute on our product program plans. This means completing our W 750 pilot builds, keeping the W 56 program on time and on budget, completing the C1000 testing and completing the Horsefly and Halo drone flight testing all this year. Operationally, we want to continue to ramp up production for the W 4CC, begin manufacturing the triples vehicles and finalize plans to start up drone production in 2023. We need to grow revenues and add new customer orders for both wheeled and aerial vehicles. We also need to complete the electrification of the Stables & Stalls facility here in Ohio. Finally, we need to execute on our common systems deployment plans, including kicking off our transition to a new ERP system, which will help us immensely in late 2023. Lastly, we are looking forward to hosting our Analyst Day on December 7 and hope you will join us.

Before we turn the call over to Q&A, I want to reemphasize 6 important points from our call today on Slide 15. The First, in less than 1 year, we have built an incredible team of business leaders, engineers, supply chain and sales professionals, operational managers, plant and back office support staff that are talented and experienced in their fields. Each of them will play a critical role as we execute on our go-forward strategies. We have added over 100 associates in the past year. The right people in the right seats on the bus are the absolute foundation of our company. We are now in production at our fully renovated state-of-the-art manufacturing complex, which we believe give rise with a true advantage and a big head start on many new EV start-up companies who seem to be struggling with building and equipping and staffing their new plants.

Building the plan is easy to say, much harder to actually do in real life. We have resolved a number of legacy issues, including recently entering to a proposed settlement regarding our class action securities lawsuits. This is a major milestone for the company that clears up concerns to the stakeholders and allows us to focus 100% on executing on our business plans. We remain confident in the market opportunities ahead in our industry to deliver value to our customers, shareholders and other stakeholders.

The transition to EV-powered commercial vehicles, both wheeled and wings will not happen overnight nor will it be easy. But make no mistake, the transition to EVs and UAVs is underway and starting to pick up steam. There was a strong market demand and full government support for EVs, UAVs and the charging infrastructure required to support them, and we expect to emerge as one of the winners in our segment. And finally, we have the necessary access to cash and capital resources to execute on our go-forward plans.

The bottom line is that after a lot of hard work, we are ready to run here at Workhorse. That concludes our prepared remarks. Thank you again for all your time this morning. We look forward to continue to update you on our progress at our Analyst Day on December 7. We're now ready to open the call for your questions, Rob. So please provide the appropriate instructions.

(Operator Instructions)

Our first question is from the line of Jeff Osborne with Cowen and Company.

I had a couple of questions on my end. I was wondering, first of all, on the Stables & Stalls initiative, what the revenue model is there? I think you mentioned in the prepared remarks that there was some revenue contribution this quarter, and it looked like the pricing was a bit higher than anticipated at least in our model for the 10 units that you shipped.

Yes, Jeff, this is Bob. Right now, the Stables & Stalls revenue just includes the route revenue. And I would put that at about 10% of the revenue for the quarter.

And Jeff, with regards to price, we're not going to go into specific vehicle pricing, but I'll just say we're in the early part of the -- early ins of this EV evolution, there's still some price elasticity in the market right now.

Got it. That makes sense. And then the settlement, what are the cash ramifications of that? I'm sure there'll be more details in the 10-Q, but you reserved $35 million as the liability. When would that cash potentially be paid? And when would you anticipate an insurance piece to come in? I'm just trying to understand with the $120 million and what the burn rate is, and then you throw on top of that the liability of potentially a cash payment and the timing there.

So if you break it down into 2 components, there's $15 million of cash, which will be funded by the insurance. So no net cash out of pocket there and then the $20 million of stock. So really, the settlement doesn't have a net cash impact on us other than we did spend above and beyond our retention on the legal side, which was the $3.8 million. So really, that's the net cash impact. Timing-wise, it will still, by the time it goes through the process, will still be a little while yet, probably Q2 of next year, I'm guessing.

Got it. That's helpful. And the last one is with the suspension issue on the C1000 and just hypothetically, if you were not to move forward with that vehicle, is there any financial ramifications of that for people that you had previously delivered to and their expectations of likely remediation of the problems that you have had in the past? I'm just trying to understand what the P&L and potentially reputational risk there would be.

I do not think there's any financial risk from our customers. We bought back the vehicles that we had already delivered. We are in discussions with those customers who had done -- had placed some orders before about our new portfolio of vehicles that will come out primarily W4CCandW750 through the first half of 2022 -- 23, and then we'll have the W 56 available going forward. And I would just say the initial response we've gone back and introduced our new team and our new product plans to several customers were basically written off work course in the past, and now we're having doors open up again for us in at least 2 of those customers who had written off before asked specifically for one of the first 5 W 56 demos that we'll have in the second quarter next year. So that's a good sign for us, I think, Jeff.

Our next question is from the line of Chris Souther with B. Riley.

So looking at the uptick in revenue we're expecting for the fourth quarter. It seems like the bulk is now 4 and that C1000 inventory clear is probably like a 2023 story if you do decide to move forward. So I just wanted to get a sense of whether there's anything else in the mix besides W-4 and maybe a small contribution from Trobos and that FedEx route.

That's about right. So basically, W4CC production, which we've already like say, we've already built vehicles, we have a bunch of coming from our supplier. That should be arriving here. Some have already arrived and another batch will arrive later this month that we have some more companies in December. The FedEx route is now stable. I think it took us a while to get that under control. I would say when I first looked at the vehicles that we purchased, it was pretty incredible, the number of miles they had, the number of years they have and the kind of maintenance condition they're on. If those are reflective of the current contracted last-mile delivery vehicles out there across many customers, there's going to be plenty of opportunities for us to replace them with much better and safer vehicles in the future. So I'd say we started to crawl in the third quarter. We'll start walling a little bit here in the fourth quarter, but we should be running pretty full hard in the first quarter next year.

Got it. Okay. And then just maybe this is something for the Analyst Day, but visibility from kind of an order book, can you just share anything at this point around different models and what that conversion is? Keep in mind that I think you've said in the past that people want to see the vehicle often before they're going to be making orders at this stage?

Yes. Good question. We're not going to comment on the order book today. If I look back over the industry, lots of people have made lots of promises about order books. But an order book is one thing and having a factory to build them and the team to build them is a different thing, right? So our focus has always been on get the plant ready to go, get the products right, get the right people on the bus, hire the team and let we sell, right? So we'll do that. I think we will be able to cover a little bit more detail at the Analyst Day, and we'll go from there. We do now have W4 CCs. We can put in the hands of customers. We had them in demo vehicles already for the last 60 days. We'll have the pilot builds of the W 750 here between now and the fourth quarter. So we'll have some of those vehicles in their hands early in the first quarter, and we'll have the demos for the W 56, obviously, in the second quarter. And we're going to be very judicious about who we give those W 56 vehicles, too, right?

Okay. Great. And then just to kind of go off of Jeff's question there, the FedEx program, what is kind of the strategy around purchasing that route? Is it just being able to test vehicles, walk through pain points for customers? Like just higher level, what is the business plan in the charging space? Is it you guys owning the infrastructure, selling, reselling hardware, doing kind of installation, EPC type work? Like what is kind of the higher level plan here?

There's no better field market research that having our own team drive the vehicle to deliver packages day in and day out. Whether it's the time you get sent over for dispatch to loading the vehicles or unloading the vehicles, the fight for the talent, who drive the vehicles, who have to be licensed to maintaining vehicles that are somewhere anywhere from 5 to 25 years old with some of them have 400,000 miles on them and doing that without a facility, it's incredible what we've learned in the first 90 days. Also having our engineers actually leave their offices and their computers and get behind the wheel with a driver in seeing how these vehicles get used and where the iPad goes, where the cupholder goes, how many times a driver has to step in and out of the truck, either the left side or the back or at the right side, how the shelving works. All that's great, and we're bringing all that information back to the redesign of the W-56 and the future W-4.

Our next question comes from the line of Greg Lewis with BTIG.

I did want to touch a little more on the Stables & Stalls initiative. I guess 2 questions here. Obviously, FedEx was interested in doing that. What has been the appetite from other potential customers around you doing something similar? And then the other question I have is, it doesn't seem like it would be, but it seems like the Stables & Stalls as more of a broader network and something not exclusive to workhorse produced vehicles?

That's absolutely correct. The number of vehicles we have that are ICE powered right now is a smorgasbord, right? There's some Morgan Olson vehicles, there's some Ship vehicles. There's some Nissan vehicles. There's some Ford, there's some GM. And so we're not going to be 100% workhorse. We're going to take the opportunity to buy 1 or 2 of our competitor vehicles to put them on the route as well. The routes range from 40 miles a day to 120 miles a day. So that validates what we thought. Most trucks travel less than 100 miles a day, a few go out to 1,150. There is an opportunity and we can have other companies or other owners of fleets come and charge at the Stables & Stalls rather than them putting in their own charging systems, which are pretty expensive to think about you've got to install, you've got to buy and install the charging systems. You got a link to the grid. You've got to have a place to charge onnet long and monitor those fundings. For an independent operator do that, they're really operating on a pretty much a shoestring budget, especially with diesel prices up some places in the country, $5 or $6 a gallon. So I think in 1 month or 1 week, we spent over $8,000 just in fuel running our little 10 trucks, right? And so we are taking all this information, the condition of the trucks, the time it will take the charge, the cost of fuel, maintenance, we've had transmission leaks, we've had someone run over a fire hydrant. And so this is just the real life of daily operations, right? And so if we can make it, we can help that fleet operator figure away economically to move to EVs, that's going to help us sell more vehicles. And in doing so, we can help service their vehicles, change tires, wash the vehicles, repair things that get damaged, right? You watch when you walk around in the city, look at all the vehicles, UPS, DHL, Amazon, FedEx, others that are banged up and damaged to step in the truck, next time we're at 7-eleven or in a downtown store, look at the condition of the trucks you be amazed.

Yes. And then I had another question around the contract manufacturing, pretty exciting to see Tropos getting ready to launch here. As you think about that opportunity, and it seems like that should be a larger opportunity, is it kind of, as we think about the road ahead, is it , okay we have our first contract manufacturer, we're going to bring them in. And then as soon as that's up and running successful, we then can then bring in another one? Or could we see, I guess, gold contract dual timing contract manufacturers being brought on as opposed to a 1 and then 1 and then a 1?

We have so much floor space up at the ranch. We're just under 400,000 square feet right now in 2 different buildings. We have a separate battery storage building, and we have plenty of land. But we are looking at it very judiciously with the finance team, what's the best use of our floor space. We're obviously going to build our own trucks. We've already got those layouts there. We now have room to do contract manufacturing. We have one contract, we've entertained RFPs for 2 others. And as I said earlier, there are some EV companies out there who are struggling with. It's much different to put a new plant proposal on a PowerPoint that actually go out and acquire land, build the infrastructure, install all the utilities that go with it, bring in the equipment hire and staff people in a very tight job market. We have that ability already at Workhorse that would save somebody else a lot of capital and get them into production much sooner, which is one of the reasons Tropos came to us. The lead time for them to go build or lease a factory, lease if they could find one that was available was probably minimally 3 to 6 months to build a brand-new factory here in North America, it's 18 to 24 months now based on lead time of critical supply chain issues, especially electric connectors and others.

Okay. And then, Rick, if I can squeeze one in. Clearly, you lay out the investment you made in Tropos. Could we see contract manufacturers at the facilities that a you're just providing those services, i.e., we're not making investment inside the company or at least for now, just given the opportunity set, you're more interested in actually participating in the upside of some of these companies?

Yes. I think we all learned in school that cash is king. So we're going to conserve our cash and make sure we have the ability to fund our own operations. Tropos was a unique opportunity to getting on the ground floor of a business and take a small stake and partner with them. And we'll take a look at other contract manufacturing opportunities in the future, whether we're going to put an equity stake into them with cash and to get an equity stake or just be a contract manufacturer.

(Operator Instructions)

The next question is from the line of Mike Shliski with D.A. Davidson.

I wanted to follow up on some of the other questions about the Stables & Stalls program. I know it was 10% of revenues in the third quarter. I'm not sure that was a full quarter. You said you started in July, maybe it was a full quarter. But does the percent of revenues go up in the fourth quarter given the holiday season and kit deliveries? And how much is in the $15 million to $25 million guidance for the full year on that route revenue? And give us a sense as how to model that for next year? Will it be a separate segment? Or is it still going to be very much a de minimis part of your overall business here?

Mike, this is Bob. I think in terms of the quarter, the fourth quarter, you have pretty much most of a quarter in there. Packages are generally up in the fourth quarter. So there could be some in there, but it still will be, as you said, compared to truck sales, it will be de minimis. It's about the process and what we're learning and the opportunities, and we get paid doing it. So it's not a huge part of our revenue goal, but it's a very important part.

Okay. And then just kind of similarly, I see your investment in Tropos on the balance sheet at quarter end. What I don't see is the investment in these routes and the trucks at quarter end. Was that also de minimis? Is it kind of other category on your assets?

It's just part of normal assets for the trucks. And as Rick said, trucks are pretty old. So there's not a ton of value on the trucks themselves. And those are the trucks that we'll be looking to convert over to electric care.

And the rate itself was purchased at like an auction? Or was it a private sale?

It was a private sale.

Yes. There's an active market for FedEx routes out there right now. It's one of the things we learned as well. I can't remember how many poleroutes are there, but there's a hell a lot of vehicles, I know that.

Got it. And also, it is going to see that there's a lot of strides being made in the W-56 product. I'm curious, do you have a body partner for that step van? And is that body partner providing the distribution for that product? Or are these really units going through the Workhorse new hires and Kris' team?

That's a great question. We're going to build both the strip chassis version. So if an end customer wants a Workhorse chassis versus the other chassis in that space, they can choose a body supplier at they're choosing, right? Typically, in these step vans, that means it's either a shift body or a Morgan Olson body. And I've been around that before. We are also going to provide full step vans. So we'll have our own body, and we'll have our own body suppliers that work with us, right? As we start to ramp up production here on the W 4CC chassis, one of the things we discovered is that there's a lack of capacity in some areas of the back end of the truck, whether that's boxes or flat beds or dry vans, reefers, et cetera. So that's an opportunity for us to either find a partner out there in the future or do some things in house as well, something we're studying right now.

Our next question is from the line of Jeff Osborne with Cowen & Company.

Sorry for the follow-up, and I would be remiss if I didn't say I don't want to beat a dead horse given all of your analogies with horses on Stables & Stalls program. But I just want to be crystal clear that this isn't a precursor, you foreshadowing that you're intending to go into a capital-intensive fleet business in terms of producing trucks and then bidding on routes or owning the asset yourself and showing growth that way. Do you intend to be completely an OEM in selling trucks to third parties? Or do you have ambitions of being a capital-intensive fleet industry yourself?

I think we don't have those ambitions. Our intent was to better understand how these independent contractors who make up a huge population of the work trucks in the Class 3 through 5 space or even 6 space, how they're going to make the transition from traditional ICE powered vehicles to EVs. EV vehicles are much more expensive than a traditional ICE vehicle. You don't have the government subsidies that are coming to like the HFI frac program in California or the 14 other states who have programs right now. It will be hard for them to make that transition. On top of that, you have to put in the infrastructure for the charging systems, whether that's slow charges or fast chargers and all that works. So this is one of our ways to study how to best do this and then target our vehicles and our sales to specific customers.

Ladies and gentlemen, this will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day. Thank you.