Proterra Inc

Good afternoon. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Proterra Q1 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. Mr. Vice President of Investor Relations, Mr. Aaron Chu. You may begin your conference.

Mr. Aaron Chu. Thank you, operator, and thank you all for joining us for Proterra's first quarter 2022 conference call. Joining us today from Proterra are our CEO, Gareth Joyce, as well as our CFO, Karina Padilla. After the markets closed, we published our quarterly letter on our website and an SEC filing, which we encourage everyone to read for details on our financials and insights into our operating results and strategy, industry dynamics, and 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 do not guarantee the future performance. They are subject to a variety of risks and uncertainty. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a 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 Chief Executive Officer, Gareth Joyce, for his opening remarks. Gareth?

Thank you, Aaron, and to everyone for joining us on the call today. Before we begin our business update, we wanted to acknowledge the anguish and suffering caused by the war in Ukraine on people around the world, including our customers, partners, employees, and their friends and family. As we turn the page onto 2022, the year has begun largely along the lines we laid out when we first offered our guidance for the year about two months ago. As expected, 2022 is turning out to be the year Proterra Powered really comes of age as its own business. while transit growth is constrained by continued supply chain challenges, even as demand remains robust. Our Q1 results really underscore that dynamic. Let me start with Proterra Powered and Energy. Q1 really demonstrated how Proterra Powered is coming into its own. Not only is there encouraging momentum in new partnerships, orders and deliveries, but most importantly, the business is starting to deliver material revenue as well. Proterra Power delivered battery systems for 287 vehicles in Q1. That is more than 10 times the 26 vehicles we delivered battery systems for a year ago, and more than double the number of vehicles we delivered battery systems for in Q4 2021. In fact, we delivered battery systems to more vehicles in Q1 2022 than we delivered for all of 2021. Deliveries have not only grown in magnitude, but importantly, breadth of application as well. In Q1, Proterra Power delivered battery systems to 10 different OEMs, four of which are in series production, with the rest being prototypes in preparation for series production later this year or in the near future. Battery production also hit a record in the quarter. including supply for both powered and transit, we produced 82 megawatt hours of batteries in Q1, almost double the 42 megawatt hours produced in Q1 of 2021. And we have now cumulatively produced over 550 megawatt hours of batteries. In addition, we also in the quarter with the shift group. This new partnership is yet another example of how we are executing on our goal to become a predominant supplier of heavy-duty batteries for commercial and industrial vehicles in North America and Europe. Part of our strategy is to very deliberately balance our portfolio of supply contracts carefully between incumbents who have led the industry with the leading combustion engine products today and are making their move into electrics such as Daimler trucks and Komatsu but also a new entrance focused purely on zero-emission technology, such as Nikola motors, Lightning E-motors, and Volta trucks. The Schiff Group represents adoption by another major incumbent in the Class 3-6 commercial vehicle segment. The Schiff Group has designed a new purpose-built EV chassis for Class 3-6 vehicles, and we're proud to have been chosen as a battery supplier for it. This new partnership will not materially impact 2022 results, but helps bolster our growth outlook in 2023 and beyond. Further supporting our growth outlook over the next few years, on the heels of the approval of $2.5 billion of new federal funding for zero-emission school buses, state-level programs to utilize that funding are starting to proliferate. Following New York City passing a bill last year requiring all of its fleets of 9,500 school buses to be electric by 2035, the New York State budget passed in April established a new state law, the first of its kind across the country, to convert the state's 50,000 school buses to electric also by 2035. Separately, last month, Boston Public Schools announced a new plan to convert all 739 of its school buses to electric by the year 2030. starting with this coming school year. So school buses are now on the fast track in following transit buses on the route towards electrification. And we expect to be a prime participant in this through our relationship with Daimler and the supply of batteries for its C2 Julie electric school bus. Meanwhile, Proterra Energy put up its best results of the last three quarters. Although deliveries were down year over year, they grew 71% as compared to Q4 2021 to 3.3 megawatts, as we were able to complete deliveries on six projects that had been pushed out from the end of last year. Viterra Energy also received multiple new orders spanning our megawatt scale and vehicle-to-grid charging solutions in Q1, including an order from PACE, the largest transit provider in suburban Chicago, with two megawatt-plus chargers, along with its new order for 20 ZX5 MAX buses. We've also been making continued progress on some of our largest projects in backlog. The two microgrid projects, one for the Los Angeles Department of Transportation and one for the Santa Clara Valley Transportation Authority, as well as our multi-megawatt project at Miami-Dade Transit, though this revenue won't be recognized until subsequent quarters. Even with the declines in charging installations in the quarter, growth in battery system deliveries drove Fratera Powered and Energy Revenue up 97% year-over-year to $23 million. As you can see, well within sight of our guidance for more than $100 million in revenue this year. At Fratera Transit, both deliveries and revenue were down in the quarter. This was directly as a result of the past shortages and supply chain challenges we discussed in our last quarterly conference call, which have extended into 2022, significantly constraining production early in Q1. But at the same time, it does not reflect a significant improvement in production in March versus January, as well as the benefit of a few targeted initiatives we have recently launched that should stabilize some of the supply chain volatility we've been experiencing and lay the groundwork for normalization and improvement in production through the balance of the year. On one hand, the supply chain environment hasn't improved at all since we last provided an update in early March and has, in fact, become even more challenging in some areas, As most of you already know, the supply chain has been stressed for some time now, going back to 2020, stemming from COVID-19-related labour availability, extended backups at ports and certain raw material shortages. Needless to say, supply chain hasn't been aided by a new war in Europe, which has further disrupted the availability of parts from Europe, contributed to higher shipping costs and reduced global shipping capacity. Now, compounding matters further is the latest COVID-19 outbreak in China, and more specifically, the complete shutdown of Shanghai for five weeks running, which has led to widespread manufacturing stoppages and further shortages and shipping complications. Even if we are not directly sourcing parts from China or Europe, these disruptions can still impact our Tier 2 and Tier 3 suppliers. Taking all of this into account, Wiring on a supplier remains a significant constraint for us, as it does for the entire industry. And motors for some of our drivetrains as well as power connectors and some other components have emerged as new bottlenecks that impacted Q1 production. The latest disruptions in China and Europe threaten additional shortages in everything from aluminum extrusions to contactors and fuses to sensors, and for that matter, sensor screws. Also, high-pressure dye costs, and even some adhesives. On the other hand, our ability to manage through these uncertain and choppy supply chain conditions improved in some important way. It has not been a passing phenomenon, but has become something we have all had to adjust our lives around. It is increasingly looking like a fragile supply chain environment that obstacle manufacturers are going to have to deal with for quite some time. But just as we adapted to manufacturing the new COVID-19 environment, we're adapting to working within this unpredictable supply chain environment as well. We recently launched a number of new supply chain initiatives that have established safeguards that should improve our readiness and ability to pivot around the biggest bottlenecks and shortages we are facing. First and foremost, we are in the process of selecting vendors to provide dual sources of key componentry Second, we've established a new program through which we're now directly sourcing ourselves many of the raw materials that are causing the biggest shortages to our own tier one suppliers, even beyond wiring harness connectors. We've established new relationships with our own brokers and have been able to acquire incremental key components and raw materials needed by our suppliers that could otherwise not have been procured for our use. And importantly, we're starting to use these new sources to build a safety stock of these critical raw materials most vulnerable to shortages. Finally, we have also been working directly on site at some of our key suppliers to help them better handle what I call surge capacity. One of the critical implications of this fragile supply chain environment is how sporadic past shipments have become and what that means for actual output. By working on-site at our key suppliers to address their own past shortages and production constraints and help them schedule their production capacity for us to focus on the past most critical job build schedule. With the help of these measures, production improved consistently throughout the quarter in a way that didn't show up in the full quarter's numbers. Production output significantly improved in March from January levels and returned to a pace that would support a 50 plus buses per quarter production rate. We reduced the number of buses suspended somewhere along the assembly line waiting for parts like a motor or wiring harness by more than 50% as well. Don't get me wrong. I am by no means saying the coast is clear. Shortages remain a challenge, and supply chain uncertainty is a continued complication. It's the problem next week you don't know about that is the bigger issue than the problem you knew about last week, and we're already working on fixing. But we will continue to lay more groundwork to cope with continued supply chain disruptions to first normalize and then improve production through the balance of the year. Meanwhile, demand is strong. On top of the order from Chicago's pace for 20 buses we announced last month, we also received a follow-on order from Cap Metro, which exercised its first option and fourth order overall for an additional 14 ZX-5 MAX electric transit buses, following its order for 26 we announced last year. In addition, the increase in federal funding stemming from the Infrastructure Investment and Jobs Act is progressing. In March, the FTA announced that federal grant programs to help transit agencies purchase zero-emissions buses and charges for the fiscal year 2022, that total approximately $1.3 billion dollars. We anticipate inbound orders from these funds to begin starting Q4 2022. So all in 2022 has played out much as we expected so far through Q1. And we reiterate our guidance for revenue growth to accelerate between 24% and 34% year over year to a range of $300 to $325 million. As our Q1 results demonstrate, Fratera Powered Energy is on its way to more than $100 million in revenue this year, with $23 million already recorded in the first quarter, and more Fratera Powered Vehicle programs entering series production later this year. At Fratera Energy, one of our major suppliers has overcome its initial production challenges, but because shipping delays remain a problem, Fratera Energy growth will not likely resume until the second half of the year, And Proterra Transit may still be facing supply chain constraints, but improved supply chain management enabled significant improvement in production rates by the end of Q1 that set the stage for improvement in output through the rest of the year. The raw material and supply chain cost pressures have also consequently continued to affect gross margins, as they did in Q4 2021. I will now hand over to our Chief Financial Officer, Karina Padilla, who will discuss these dynamics and other financial metrics in greater detail. Karina?