Proterra Inc

Hello, my name is Jean-Louis. Welcome to the Proterra Inc. Q1 2023 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 1 on your telephone keypad. If you would like to withdraw your question, again press star 1. I will now turn the call over to Erin of Sylvester Relations.

Thank you, operator, and thank you all for joining us for Proterra's first quarter 2023 conference call. Joining us today from Proterra are our CEO, Gareth Joyce, and our CFO, Karina Padilla. During this conference call, we will make statements related to our business and industry that are forward-looking statements. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties, including those noted in our quarterly letter and our filings with the SEC. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filing available on the SEC's website and via the investor relations section of our website. Additionally, non-GAAP financial measures will be discussed at today's conference call in addition to financial information prepared in accordance with U.S. GAAP. These non-GAAP financial measures should be considered in addition to but not as a substitute for the information prepared in accordance with GAAP. That said, 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 here today. For the call today, I will open with an overview of our strategic priorities in 2023 and the progress we have made on them in the first few months of the year. Then I will pass it off to Karina, who will provide the operating and financial details of the quarter. And finally, I will close with comments on our 2023 guidance and overall outlook. First and foremost, on our strategic priorities for 2023 and how we are tracking on them so far this year. We have established three critical strategic priorities for Proterra in 2023. One is to continue to manage our cash. Two is to build on our foundation for our margin improvement goals. And three, is to ramp powered one production output and ultimately achieve our revenue growth targets in an effort to be a leading technology supplier to the electric commercial vehicle market in the US and Europe. I am pleased to report key accomplishments in each of these areas in the first quarter of 2023 and April. First, we managed cash and working capital well in Q1 2023 with cash cash equivalents and short-term investments down by less than $2 million from the end of Q4 2022, driven by $7.1 million in net cash provided by operating activities in Q1 2023. Though our Q1 2023 adjusted EBITDA loss of $50 million was approximately flat sequentially, the $7 million in net cash provided by operating activities in Q1 was achieved through improved collections on receivables, higher customer prepayments, and management of accounts payable to support growth in our inventory of battery cells, which we view as a key strategic asset for us that is expected to help feed the planned production ramp of Powered One in 2023 and 2024. Our net cash flow provided by operations in Q1 was driven by working capital management and not profitability. All in, our cash, cash equivalents, and short-term investments ended Q1 at $296 million compared to $298 million at the end of 2022, and we also had $43 million in available capacity with our ABL as of the end of Q1. Next, on gross margin. In line with our projections last quarter, we reported a gross loss in Q1. But we're encouraged by a few key developments to start the year that we believe are supportive of our gross margin improvement goals going forward. First is the expected impact of Powered One now that it has moved from construction phase to production phase. Q1 2023 gross margin was adversely impacted by low fixed cost absorption with Powered One operating well below capacity, leading to inflated labor and overhead costs per pack until we achieve higher utilization rates. Start of production at Power One began in early January, and in this initial phase of the ramp, we experienced some growing pains, as may be expected with any new manufacturing facility. We've been making progress with each successive month. Battery pack output at the facility in March was more than double that in January. And in April, it was up another 15% from March. Module production at the facility is doing even better, with total megawatt hours of modules produced in April more than double that in March. As output grows and we achieve higher operating efficiency, we not only expect higher revenue recognition but less margin pressure, as well as the overarching benefits of non-cell cost reductions that we expect from Powered One compared to our California facilities where all of our batteries have historically been produced. We expect this to gradually benefit gross margins going forward. Second is the benefit we expect to gross margins from the consolidation of bus production in Greenville. As we discussed on our last call, the average labor hours required to produce a bus in City of Industry were 250 hours higher than in Greenville in 2022. But the facility was not closed until the end of March 2023, and the expected benefits are therefore only anticipated to begin to be realized in Q2 and beyond. Third, Q1 2023 was the first period in which we recorded the Inflation Reduction Act 45X battery production credit of $10 a kilowatt hour for domestic battery module production that we expect to qualify for. Though cash is not expected to be received for this credit until 2024, assuming we ultimately qualify, we are accruing for it as a contra cogs starting in Q1 2023. The contribution this quarter was not material, but we expect it to rise along with battery production at powered one. We believe that our battery packs will qualify for the credit, but it should be noted that we're still waiting final IRS guidance for assurance. Finally, with the help of the start of production at Power One, we grew revenue by 36% year over year to just short of $80 million in Q1 2023. Before we shift to the financial update, last week we announced that Karina is resigning from her role as CFO effective May 15th. And David Black has been appointed as our new CFO effective following Karina's resignation. David comes to Proterra with 30-plus years of experience in roles including CFO, Chief Accounting Officer and Controller for Babcock & Wilcox, and its power generation spin-off, BWX Technologies. We're excited to have David join the Proterra family, and you can expect to hear from him at our next conference call. Let me now pass it over to Karina to discuss our Q1 operating and financial results in more detail.