Proterra Inc

Greetings. Welcome to the Proterra Inc. second quarter 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. And at that time, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hand tape before pressing the star keys. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Proterra's Investor Relations, Aaron Chu. You may begin.

Thank you, Operator, and thank you all for joining us for Proterra's second quarter 2021 conference call. Joining us today from Proterra are our Chairman and CEO, Jack Allen, our Chief Financial Officer, Amy Ard, as well as President of Proterra Power & Energy, Gareth Joyce. After the market's closed, we publish a quarterly letter on our website and in an SEC filing, which we encourage everyone participating in the call to read for insights into our operating and financial results and a detailed discussion of industry dynamics and our outlook. During this conference call, we will make statements related to our business and industry that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website and by the Investor Relations section of our website, as well as the risks and other important factors discussed in today's quarterly letter. Additionally, non-GAAP financial measures will be discussed on today's conference call. A reconciliation of these measures to their most directly comparable gap financial measures can be found in today's earnings release. We'll kick off the call today by introducing our chairman and chief executive officer, Jack Allen, for his opening remarks.

Thanks, Aaron, and thanks to everyone who's on our call today. We're incredibly excited to announce our inaugural quarter results for Q2 2021. This is an opportunity to not only show how we are distinguished from a crowded field, but also to highlight how our business is performing today and poised to grow tomorrow. So just a kind of a quick table of contents of what we're going to do. We're all going to keep our prepared remarks to a minimum. I'll spend a few minutes highlighting not only the extent to which we have already grown our business today, but also how we have put the pieces in place that give us confidence in our future revenue growth outlook. Amy will discuss the financials, including gross margins and cash, But we're going to leave the bulk of the call to Q&A so we can address the topics most important to you. So first things first, three takeaways for this quarter. Number one, we are delivering strong results today. So we may be a new public company, but we're not a new company. We are a technology company that's been innovating on battery electric commercial vehicles for over a decade. We're now on our fifth-generation bus and our fourth-generation battery. We have achieved serial production of batteries and buses many years ago. So let's go to Q2 in a quick summary. We produce 41 megawatt hours of batteries for both powered and transit. That's up 30% from Q2 2020. We delivered 54 buses, up 50% from a year ago when production was curtailed due to COVID. More than 50% of the deliveries in the quarter were to existing customers. including a dozen to the Los Angeles Department of Transportation to bring its fleet of Proterra Transit electric buses to 25. We also delivered buses to six new customers across the map from Go Raleigh in North Carolina to Bow Valley Regional Transit in Alberta, Canada. We also announced a sizable follow-on order for 42 transit buses from Miami Transit, which will bring its Proterra fleet to 75 buses, and importantly, And this deal also includes Proterra energy charging solutions as well. Proterra Power delivered battery systems for 30 vehicles. We also established new partnerships last month that expand our reach further with two established companies. The first is Roush Cleantech for its electric F650 truck platform. This is a very popular work truck. It's often used for box trucks, utility trucks, and shuttle buses. And the partnership is launching with a very important first customer, Penske Truck Leasing. Next is Taylor Machine Works for our second partnership in off-highway equipment after the electric excavator with Komatsu that we announced in Q1. This one is focused on vehicles used in ports, including both an electric forklift as well as an electric container handler. This serves to really highlight the energy density and safety of our technology. by packing in almost one megawatt hour of energy on board, which can carry loads up to 75,000 pounds. Ironically, not far away from the weight of a Class A truck with a full payload. Patera Energy installed four megawatts of charging solutions to bring the cumulative total to 55 megawatts installed since 2016. So altogether, this translated into record revenue of $59 million in Q2. up 39% year to year. Transit accounted for 82% and powered and energy for the other 18%. Gross margin was 2%. We've now been positive in gross margin for six quarters in a row. We'll readily admit that's not where we want to be, and Amy will get more into that later. Most importantly, we're executing on our plan and we're following through with what we said we would do. Entering into the year, we expected revenue of $246 million. Halfway through the year, we've generated 46% of that, or $113 million of revenue. We did this even in the face of all the challenges that you all are probably hearing about in every Q2 call in just about every industry. We also are experiencing widespread turbulence across the global supply chain. It's led to shortages, delays, and increased break costs. The supply chain inconsistency has also leaned into inefficiency on our production lines. We've had price hikes from everything from metals to plastics, and now this new resurgence of COVID is further complicating plant efficiency. But so far, we have been doing what's been necessary blocking and tackling to get the job done in spite of these challenges. And as a result, while there's still plenty of hurdles for us to overcome in the second half, we are affirming 2021 revenue guidance of $246 million. The second takeaway is that all three of our businesses, transit, power, and energy, are all incredibly well positioned to capitalize on commercial vehicle growth trends. Transit is already putting up strong results today and is poised for strong growth in the years ahead as electrification of the North American transit bus market grows from around 10% over the last couple of years toward the 50% level that third-party forecasts have by the middle of this decade. We believe Proterra Powered offers even a larger opportunity that is poised to accelerate our growth further, starting in 2022 and 23. Just using North America as an example, there are 5,000 or 6,000 transit buses sold per year, but the medium and heavy-duty commercial vehicle market is 100 times that at a half a million plus units per year. And we expect Proterra Energy not only to serve as an enabler of electrification, for our transit-powered customers, but position us to capture a higher portion of lifetime customer value. These two businesses are demonstrating their growth prospects already. We have 10 powered partnerships to develop and supply electric commercial vehicle products across nine different OEMs. This demonstrates the wide applicability of our technology, as well as the breadth of adoption by a range of different vehicle OEMs, from incumbents to startups and from vans to excavators. This is providing us with early scope that will ultimately enable the scale needed to grow our volumes and our margins even further. Terra Energy has cumulatively installed 55 megawatts of charging solutions for both transit and school buses. Included in this is the first installation in Q2 of our new one megawatt capable charging system, which could connect 40 vehicles with no need for a new transformer or switchgear while reducing square feet utilized by up to 30%. So a couple of points to highlight and better understand the growth outlook for power. An initial development deal for a new vehicle program, that doesn't hit the income statement immediately. It could take a year or two of development before it turns into a high volume supply contract. So you may not see it in our financials today, but we are priming the platform for revenue and margin growth in the years ahead. So out of our 10 partnerships, seven of them are in supply contracts. And while we provided battery packs to eight of our partners by the end of Q2, it's really important to understand that only one of them is actually in serial production today. And to better understand the near-term revenue growth, one more of our partnerships will enter serial production later this year. Another three to four are expected to enter serial production next year, and the rest in 2023. So, let's think about what's beyond that. You know, though we have 10 partnerships in place, we aren't standing still. We entered the year with five, and not even eight months into the year, we've doubled that. So, we expect to continue to announce new partners regularly. which would support our volume growth ambitions. So Patera-powered revenue growth has only just begun, and it's poised to accelerate next year and the year after. The third takeaway is one I'm incredibly excited about, and that's our new expanded agreement with LG. So along with our Q2 results, we also announced a major expansion of our partnership with LG Energy. This is an important step to address one of the most prominent supply chain risks to our growth prospects over the next couple of years. First, we're making an upfront commitment for a low nine-figure dollar sum, securing dedicated production lines at a US manufacturing facility in which LG will be producing cylindrical cells with chemistry optimized for commercial vehicle applications. This represents an upright commitment for a steady supply of U.S.-made cells totaling multiple gigawatt hours per year. So by providing this demand visibility and this financial commitment, we are helping to enable LG to pioneer U.S. manufacturing of cylindrical battery cells completely customized for the heavy-duty applications. In turn, we have secured a high volume of cell supply through 2028, and we believe these will be the first cylindrical cells produced for commercial vehicles that can qualify as tariff-free under the USMCA. This also creates new American jobs in battery technology and manufacturing that is really poised to grow through the rest of the decade. Second, we are extending our existing contract that was set to expire at the end of 2022. We expect that this contract will provide sufficient cells for our production needs before the U.S. facility starts production, as well as potential incremental volumes above and beyond what the domestic facility can provide if and when demand requires it. So this is a really big deal. It solidifies our partnership with a critical cell supplier like LG, It locks in supply, which allows us to provide sufficient visibility and reliable supply to our OEM customers. Most importantly, it's USMCA compliant. And all in, we believe this provides us a significant competitive advantage over the next few years. So a couple of final points from me that we think will be of interest. We're also announcing that we'll be reporting two separate business segments starting in Q3. transit will be separate from power and energy. And as a part of this, we've also announced that Josh Ensign will be moving from chief operating officer to be the president of Portera Transit, continuing to report to me. And finally, I can't end this call without expressing our gratitude to all of our employees for their incredible hard work and dedication to our mission. All in, we are positioning ourselves to ride the wave of commercial and industrial vehicle electrification this decade, having demonstrated the breadth of demand for our products from transit to our 10 commercial vehicle programs, being able to secure battery cell supply to ensure we can fulfill that demand, and finally demonstrating an important ability to execute on our plan. I'll now pass it off to Amy for a couple of highlights on the financials.