Proterra Inc

Greetings. Welcome to the Proterra's third 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. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. Please note, this conference is being recorded. It is now my pleasure to turn the call over to your host, Aaron Hsu.

Thank you, operator, and thank you all for joining us for Proterra's third quarter 2021 conference call. Joining us today from Proterra are our chairman and CEO, Jack Allen, our president, Gareth Joyce, as well as our interim CFO, AJ Sideroth. 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. 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 uncertainty, and 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 via the investor relations section of our website. Additionally, non-GAAP financial measures will be discussed on today's conference call. A reconciliation of these measures to their most directly comparable GAAP financial measures can be found in today's quarterly letter. We will kick off the call today by introducing our chairman and chief executive officer, Jack Allen, for his opening remarks. Jack?

Thank you, Aaron, and thanks to all of you for joining us today. We're really excited to present our second quarterly report as a public company. In Q3, we were able to overcome numerous supply chain complications that are affecting most of the industrial world to report growth in battery production, revenue, and gross margins in the quarter. Battery production rose 95% year-over-year to 62 megawatt-hours. Proterra-powered battery deliveries to commercial vehicle OEMs grew more than 140% year-over-year to 78 vehicle sets. This would be doubled to 130 vehicle sets if you include our electric transit buses. Bus deliveries at Proterra Transit were up 58% year-over-year, and all-in, our revenue grew 30% year-over-year and 6% quarter-to-quarter to $62 million. At the same time, gross margins ticked up a couple of percentage points from Q2 up to 4%. So let me start with just a couple of comments about the macro market. So while our Q3 results demonstrate how Proterra's growth is riding the emerging wave of commercial vehicle electrification, all of our businesses were provided a significant tailwind with the passage of the Infrastructure Investment and Jobs Act last Friday. We provided details of what this funding would look like in our Q2 call, But I will reiterate that it provides a five-year extension of the Federal Surface Transportation Bill, and that bill provides long-term funding certainty for transit, as well as an unprecedented level of support for the electrification of transit and school buses. It provides $39 billion for public transit in addition to the current baseline, including more than $4 billion of funding that's dedicated to zero-emission transit buses over five years. There's a minimum of $2.5 billion and up to as much as $5 billion of funding for electric school buses, $7.5 billion for electric vehicle charging. And this is not just for passenger vehicles, but also for commercial fleet charging as well. And there's additional funding to help port and airport electrification. So as you can see, this package provides support for each of our business lines and our plans for growth over the next five years. We continue to believe that demand is at a tipping point, not only for electric transit buses, but electric commercial vehicles in general. And we've established a firm foundation across all our businesses to take advantage of it. Matera Transit not only has a growing backlog, but our bid universe is up 28% year over year, even before the benefit of the infrastructure bill. We expect Matera Power to supply batteries to at least seven different vehicle programs by the end of next year. And this is up from only one at the start of this year, with many more anticipated in 2023. And our new megawatt scale charger is starting to gain traction with large fleets, as evidenced by Proterra Energy having been selected by the LADOT to supply five of our 1.5 megawatt mega chargers. So in response to this growing demand, we've added a second shift to our battery facility in the City of Industry. And we're planning a second shift in our Burlingame facility in Q1 of 2022. We are also ready to add a second shift to our bus production as well. This would increase our throughput by 50% or more, but we're awaiting supply chain complications to smooth out first, as it really makes no sense for us to add the labor unless we have the parts that they need to assemble. With that, let me spend a couple of minutes on supply chain. You know, it's been widely covered. Supply chain has been a significant hurdle this year. I'm sure just about every manufacturer's earning report and conference call today is filled with complaints about clogged ports, trucker shortages, shipment delays, et cetera. And certainly we weren't immune from that either. But we did set ourselves apart this quarter in how we dealt with it. Manufacturing is tough in this environment, especially when you're ramping. So if you ask an engineer or a financial analyst how many parts does it take to build a bus, you're going to get a quantitative answer. Maybe it's 1,000, 5,000, whatever it may be. But if you ask a plant manager the same question, you're going to get the real answer. It takes all of them. The connectors for the wiring harness are just as important as an axle or transmission. And scaling production requires a delicate balance of a lot of moving parts. For us, on the one hand, it helps to be vertically integrated, like we are. And we have a supply of battery cells. So by producing our own battery packs, we've eliminated a major pinch point confronting any electric vehicle we have. Beyond that, it really helps to have experienced manufacturing and a supply chain team that have been through these challenges before. They know how to plan and they know how to react. To adjust to the supply chain deficiencies, in some cases, we found new suppliers for our own suppliers so they could complete critical components for us. In other cases, we bought production of some components and some assemblies in-house. For example, we expanded in-house wiring harness and metal fabrication capability to produce over 1,600 wiring harnesses and over 600 metal fab parts on our own in this quarter. But Terra Energy also encountered its own supply chain issues, stemming from industry-wide shortages of key charging hardware components. This forced us to push three megawatts of installations out of this quarter. But even with these challenges, we reported solid growth in revenue and improvement in gross margin. So as we look ahead, like others, we expect these supply chain complications to continue at least through early 2022. But for the full year of 2021, our revenue forecast remains at 246 million. We're representing a growth of 25% year over year. Our orders and our production schedule support this target, but supply chain delays may impact the timing of deliveries and our ability to achieve our forecast. We have buses on the assembly line today that are ready to go, but the wiring harnesses are day to day for us to complete them. As a result, it's possible that five to 10 buses may not be delivered by year end, in which case their revenue recognition will likely be pushed into Q1 of 2022. Regardless, we feel confident that Q4 revenues are still on track to grow year over year by double-digit percentage points. And with demand across all our businesses more robust than it's ever been, and the regulatory tailwinds gathering steam, we feel really good about accomplishing another year of strong growth in 2022 as well. So let me introduce you to Garrett Joyce. Garrett was promoted to the president of Proterra in September, and he's going to play a major role in achieving this growth. Garrett.