Earnings Transcript for PTRA - Q1 Fiscal Year 2022

Operator: Good afternoon. My name is Joel 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. [Operator Instructions] Thank you. Vice President of Investor Relations, Mr. Aaron Chew may begin your conference.

Aaron Chew: 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 in a 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 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 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?

Gareth Joyce: Thank you, Aaron, and to everyone 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. At restock was Proterra Powered & 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 Powered 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 Powered delivered battery systems to ten different OEMs, four of which are in series production, with the rest being prototyped in preparation for series production later this year or in the near future. Battery production also hit a record in the quarter, including supply from 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 [indiscernible] in the quarter with the Shyft 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 them move into electric, such as diamond trucks and Komatsu, but also new entrance focused purely on zero emission technology, such as Nikola Motors, Lightning eMotors and Volta Trucks. The Shyft Group represents adoption by another major incumbent in the Class 3 to 6 commercial vehicle segments. The Shyft Group has designed a new purpose-built EV chassis for Class 3 to 6 vehicles. And we're proud to have been chosen as a battery supplier for it. This new partnership will not let materially impact 2020 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 late last year requiring all of its fleet 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 travel 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 Jouley electric school bus. Meanwhile Protera Energy put up its best results of the last three quarters. Although deliveries were down year-over-year, that 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 end of last year. Protera Energy also received multiple new orders spanning our megawatt scale and vehicle to good charging solutions in Q1, including an order from Pace, the largest transit provider in suburban Chicago with two megawatt plus charges, along with its new order for 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 megawat project at Miami-Dade transit. So this revenue won't be recognized until subsequent quarters. All in, even with the declines in charging installations in the quarter growth in battery system, deliveries drove Proterra Powered and Energy revenue up 97% year-over-year to $23 million. As you can see, well with inside of our guidance for more than a $100 million in revenue this year. At Proterra Transit, both deliveries and revenue were down in the quarter. This was directly as a result of the power 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 will be 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 labor availability, extended backups at ports and certain raw material shortages. Needless to say supply chain, hasn't been aided by a new order 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 disruption 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. Latest disruptions in China and Europe threatened additional shortages in everything from aluminum extrusions to contractors infuses to sensors and for that matter sensor screws, also high pressure die 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 – as not been a passing phenomenon, but has become something we’ve all had to adjust our lives around. It is increasingly looking like a fragile supply chain environment is then obstacle manufacturers are going to have to deal with for quite some time. Back just as we adapted to manufacturing in 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 have it around of 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 1 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 are starting to use these new sources to build a safety stock of these critical raw materials most vulnerable to shortages. Finally, we’ve 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 parts shipments have become and what that means for actual output. By working on side, our key suppliers to address their own parts, 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 four quarters numbers. Production output significantly improved in March from January levels and return 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 a bigger issue than the problem you knew about last week and we are already working on fixing, but we all 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 line order from CapMetro, which exercise its first option and fourth order overall for an additional 14 ZX5 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 FDA 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. We anticipate inbound orders from these funds to begin starting Q4 2022. So all in 2022 has paid out much as we expected so far through Q1. And we reiterate our guidance, revenue growth to accelerate between 24% and 34% year-over-year to a range of $300 million to $325 million. As our Q1 results demonstrate Proterra 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 Proterra Powered vehicle programs entering series production later this year. At Proterra Energy, one of our major supplier has overcome its initial production challenges, but because shipping delays remain a problem Proterra 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 improving in production rates by the end of Q1, that set the stage for improvement in our output through the rest of the year. The raw material and supply chain cost pressures have also consequently continue to affect gross margins as they do 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?

Karina Franco Padilla: Thanks, Gareth. I’ll focus my comments on three critical elements of our financials, revenue, gross margin and cash. I’ll start with revenue. Q1 revenue grew 8.5% to $59 million. The top line growth was driven by our Powered & Energy business and was partially offset by declines in Transit revenue. I’ll spend the next few minutes going into a bit more detail of our revenue performance by business unit. Starting with Powered & Energy, Proterra Powered & Energy revenue grew 97% year-over-year to a new high of $23 million, representing an incremental $11 million. And on a trading 12-month basis, Powered & Energy revenue has now surpassed the $50 million mark for the first time at $59 million. The growth was driven by a more than tenfold increase in Proterra Powered deliveries to 287 vehicle sets. Proterra Powered delivery growth rates exceeded the pace of revenue growth because of a greater delivery mix of lower weight vehicles with smaller battery sizes, including Lightning eMotors Class 3 vans. In addition, Proterra Energy installations declined year-over-year, primarily related to continued delays and hardware shipments from a key supplier as well as delays in construction project timelines. However, deliveries improved sequentially and were the highest since the second quarter of last year Switching to Proterra Transit, revenue in the quarter was $35 million, a decline of approximately $7 million versus the prior year. As we delivered 40 electric buses, [indiscernible] into 48, we delivered in Q1 of 2021. The lower bus deliveries was largely due to the continued per shortages that we discussed in our last quarterly call and which intensified in early Q1 before the supply chain initiatives that Gareth discussed kicked into gear. In addition, the average bus prices declined mostly due to lower mix of customization on the bus is delivered in the quarter. Electric bus deliveries in Q1 included new and repeat customers such as in New York, New Jersey, Port Authority, Proterra suite now stands at 46 buses since our first bus was delivered in 2018. Charleston’s CARTA, which is adding 20 35 Foot ZX5 buses in a follow on order on top of in fleet of six 40 Foot Proterra buses. And the name many might not be familiar with. Biddeford, Saco, Old Orchard Beach Transit, which along with the Portland Metro area are bringing the first electric buses ever to the state of Maine. We are very proud to be at the forefront of enabling zero emissions through electrification and states that are at the beginning of their zero emission mass transit journey. Moving on to the gross margin front. We reported a negative gross margin of $3 million in Q1 of 2022. This compares to a gross profit of almost $900,000 in the prior year and a gross loss of $3 million in Q4 of 2021. Given margins were impacted by many of the same items that affected our performance in the previous quarter, although we were not pleased with the results they did perform relatively in line with our expectations based on the current environment we’re operating in. Summarizing the primary factors of our margin performance in the quarter with the combination of lower transit deliveries, product mix, manufacturing inefficiencies, and cost inflation. Now let me elaborate a bit on these drivers. First on product mix, the revenue from products mix in the quarter was 3% lower both in prior year and sequential. The mix in revenue is prevent by varying customer bus configurations delivered in a quarter. Second, on cost inflation and manufacturing and efficiencies. We are encountering material and freight cost inflation across both business units. On the production side, in our Transit business unit, it took 9% more incremental labor hours to complete a bus, ready for delivery in Q1 2022 versus prior year and 25% longer versus Q4 2021. The idle time a bus spends waiting on one component to arrive, to be able to move on to the next build station leads to significant inefficiencies across the factory floor. In many cases, we are able to advance the bus through various stations, but at some point, the bus requires some level of rework and incremental installation time is required if the component was not installed in the most efficient sequence along the build phase. The combination of lower revenue per bus, and the incremental labor hours required for bus completion had a negative impact on Transit margins in the quarter. On the Powered and Energy side of our business, the margin challenges manifested themselves differently from Transit for some batteries. The strong unit growth output that you saw on our top line required additional overtime hours and freight expense in order to get the product out to our customers on time for their production schedule. Not only did we incur incremental freight expense from shipping inflation and expedites, but we also utilized 356% more overtime hours than prior year and 83% more overtime hours than Q4 2021. Specific to freight expense, for perspective, 29% of our Powered revenue in Q1 2022 was from international sales. However, on an absolute basis, the international sales in Q1 2022 was 135% larger than the total Powered revenue a year ago. Total freight expense for Powered alone increased by $1 million versus prior year due to both increase in volume, and increases in freight rates. Our battery business is not immune to supply constraints. However, parts shortages on the battery side have not been as prevalent as we’ve seen in Transit thus far. Lastly, on the Energy side, the lower revenue from declines and charging installations in the quarter did not help offset some of the challenges seen across our other product lines. However, given the challenges, I just noted, we are taking actions to improve our margins. It will take some time to play out, especially as supply chain itself has not stabilized, but we are making progress on our gross margin initiatives and I would like to give you a quick update. First, are the price increases we discussed in our last quarterly call? We have implemented new contract pricing across both business units for all future sales orders. Proterra Powered has also made good progress on actualizing in market-based data driven approach to address inflation of raw material and other cost increases in good pace re-pricing proposals and negotiations with our customers. We have notified all of our customers who are in the series production life cycle and the majority of customers who on very low volume development trials of the re-pricing approach. Given timing of negotiations and contractual obligations, we don’t anticipate seeing any of our new pricing to kick in until the latter part of this year. On the Transit business, we have successfully negotiated cost recovery price increases with just under 20% of the customers in our remaining 2022 build plans. And we’re ongoing negotiations with another 65% of our customers slated for our 2022 build plan. With that said, given on 12 months to 18 months backlog, despite the new pricing going into effect the latter part of the year, we don’t expect to see a material benefit until 2023 and beyond. It’s important to note that although the groundwork has been said, the hard work continues and we will continue to have discussions with all of our customers, suppliers, and partners to improve our margin performance over time. We also expect margin improvement for manufacturing efficiencies. We continue to expect improvement in production efficiencies when supply chain and logistics normalize. However, this benefit has been likely to come in the first half of the year. We continue to work on evaluating alternate suppliers and are currently undergoing new supplier qualifications. The increase in our supplier base will diversify some of the risk and results in improved supply chain utilization. Third, as I mentioned in our last call, we will execute on capacity expansion projects as supply chain and logistics normalize. As I mentioned in our last call, we will execute on capacity expansion projects, the supply chain and logistics normalize. We expect to increase capacity through the addition of shifts and the expansion of our new battery facility in Greer, South Carolina will enable revenue growth, scale and better asset utilization. Gareth will discuss our progress of our new factory and its closing commentary in a few minutes. Moving on to cash. Our balance sheet remains strong with $599 million in cash, cash equivalents and short-term investments as of March 31, 2022. Our cash flow burn in the quarter was $61 million and was in line with our expectations for the first quarter. In addition to our operational cash usage, we had approximately $10 million in capital expenditures, largely related to the build out of our new battery factory in Greer, South Carolina. We increased inventory by $14 million in part from our continued efforts to secure early delivery of key components, including battery cells. Lastly, we ended the quarter with higher receivable due to timing of which we expect to normalize by the end of the quarter. Our adjusted EBITDA loss of $35 million in Q1 was driven by a gross loss of $3 million and operating expenses of approximately $37 million excluding stock compensation offset by depreciation and amortization of $3.4 million. All in with close to $600 million in cash, we have a balance sheet strength that sets us apart from others. Liquidity is a priority, and we will be prudent with our cash usage to give us the durability to endure these near term supply chain disruptions while still being able to invest comfortably and battery capacity expansion, R&D, and our operations to support our growth strategy for many years from now. With that, I’ll pass it back to Gareth Joyce for closing commentary. Gareth?

Gareth Joyce: Thanks, Karina. In summary, Q1 was a microcosm of the key dynamics we see playing out in 2022. Powered & Energy more than doubling revenue to above $1000 million for the full year and Transit growth curtailed by continued parts shortages and other supply chain related delays. Demand continues to gather strong momentum, but our ability to capture all of it in 2022 is being limited by production capacity and supply chain constraints. With Q1 somewhat in line with our expectations, we continue to expect revenue growth to accelerate to at least 24% to 34% this year to $300 million to $325 million. We look forward to our next leg of growth beyond that, which remains larger function of one new battery capacity coming online at Greer, South Carolina, and two Transit adding a second production shift once supply chain fluidity and predictability improved. I will conclude our prepared remarks with some updates on both fronts. First on our battery capacity expansion. Construction of our third battery factory in Greer, South Carolina is well underway and is on budget and largely on time. Equipment installation has proceeded according to plan to date. Earlier in April, we completed construction of the battery production enclosure for the first two production lines. And just last week we installed the first automation equipment and powered it on for the first time. It’ll undergo thorough testing regime throughout the month of May. And we plan to begin installation of the battery module equipment, as well as the non-battery production equipment for ancillary products, including drive trains and high voltage junction boxes in the next few weeks. In addition, we’re making progress on staffing the facility well. The site’s key leadership positions have already been hired and are onboard. We’re now in the process of filling out our manufacturing, engineering, maintenance, and quality teams. So all in, we remain on target for start of production in Q4 this year. Finally on Transit, there are essentially three primary hurdles we must overcome for our next leg of growth. First and foremost of the supply chain dislocations that have been complicating production these last few quarters. Second, is scaling production to new highs, moving from one shift to two shifts. And then a third, before expanding additional bus manufacturing capacity. And finally, of course, is improving gross margin. Supply chain conditions remain largely out of our hands, but we are adapting our production processes to better manage them, scaling production and margin improvement is the next order of business and these are largely within our control. But it’s going to take the right leadership to make that happen. Marking the next era for Proterra Transit leadership, I am excited to have announced the appointment of Julian Soell as a new President of Proterra Transit. We interviewed some amazing talent, but no one else brought the combination of internet, strategic thinking and operational experience that I'm confident will bring a fresh perspective and the operational excellence to help transit not only scale production, but expand margin as well. In conclusion, Q1 is performing in line with our expectations, when we provided our outlook in early March, and we reaffirm our guidance for 2022. Demand for electric trucks and buses continues to gather momentum and we are positioned for significant growth as Greer comes online. More partners launched series production of the Proterra Powered vehicles, and Proterra Transit adds a second shift and continues to scale bus production. We believe that Powered has reached an inflection point and has entered the acceleration growth phase of the S-Curve. To put this in perspective, we produced approximately 25 to 30 megawatt hours of batteries per quarters throughout 2020. In 2021 that grew to the 40s. In the first quarter our battery production rate almost doubled to more than 80 megawatt hours. Supply chain and production capacity constraints are limiting growth in 2022, but at the end of the day third-party forecast for electric penetration of trucks and buses from Morgan Stanley suggests a market for commercial vehicle batteries in North American and Europe of close to 90,000 megawatt hours in 2030. And we believe that Proterra is ideally positioned to capture a material share of this market at a meaningful market margin. Over the past quarter, we've continued to add incredibly talented people to our amazing team at Proterra. I want thank them for their tireless efforts in helping us continue the journey from successful startup to maturing scale-up. With asked we will open it up to Q&A. Operator?

Operator: [Operator Instructions] Your first question comes from the line of Sherif El-Sabbahy from Bank of America. Your line is now open.

Sherif El-Sabbahy: Hi, good afternoon. I just wanted to ask; you mentioned a pick-up and improvement in production from January to March. Can you quantify that pick-up and what you're seeing into the early months of Q2?

Gareth Joyce: Hi, Sherif, thank you. Yes, we – I don't have a number to quantify a few, but we certainly did see significant improvement in material flow to our production line as February and March developed. Some of the strategies we put in place to manage supply in particular of our raw material flow from our wiring harness service provider showed great improvements. And as I mentioned we've been doing a number of things. One, we sourced a lot of the components ourselves to be able to support their production capacity as they run short of those particular critical components. Two, we've had people on the ground with our key strategic suppliers in areas where we have short delivery of product to help them manage their own production output so that if they're faced with a decision around, which is the most important component, get out first to keep our line moving. We're managing that tactically on a day-to-day basis. So these sort of actions are starting to deliver results for us. And the result of that was in March, we were able to get our production number to levels that support the 50 units a quarter again, at least stabilizing our foundation.

Sherif El-Sabbahy: Understood. And then looking at last quarter's margin guidance of – for 2022 of approximately flat, what assumptions are embedded within that regarding free and some of these cost headwinds. And do you have to see a substantial drop off in those in the second half?

Gareth Joyce: Yes. I think we said it on our last call and reiterated again today, that the supply chain environment is fragile on the one hand. So there's a lot of disrupted flow of materials that's causing escalated freight costs. In many cases we're having to expedite product both to our own production lines and then on outbound product to our customers as we try and remain customer focused and have them be able to run their own production environments on the Powered side. So you've got that sort of fragmentation in the market and then of course, as we mentioned last call the real effective inflation started to be felt and that we don't believe [indiscernible] soon, and so we've been preparing the business to be able to respond to that. And as Karina noted we've been working on the price side of the business to make sure that we have the potential to recover as much of that as possible in the market, but, but there's a lag effect between the input cost pressure is seen, and when that recovery comes on the price side, which would be probably Q4 and into 2023 as we mentioned. So yes, we see that pressure continuing through this year, which is obviously going to see that pattern of compressed gross margin sustaining for the balance of this year in a likelihood.

Sherif El-Sabbahy: Thank you. I'll pass along.

Operator: Your next question comes from the line of Courtney Yakavonis you're from Morgan Stanley. Your line is open.

Courtney Yakavonis: Great. Good afternoon guys. Maybe this is a follow-up to the conversation on the pricing side. Can you give us any sense of how much pricing you're thinking about taking and just remind us how much of the backlog is eligible for some of these inflation pass troughs and how the conversations are going with customers at this point, and if there's any sense that customers are at all price sensitive when you're having these conversations?

Gareth Joyce: Yes. Thanks, Courtney. Yes, we have fairly significant customer base now both in powered and in transit. So we're working through them on an individual basis, and each of them has certain uniqueness around the contract, so it is an individual discussion in each case. On the transit side, we've got through roughly 20% of our customer base successfully, and then there's another roughly 65% that we're still working through. And then the difference is some of the contracts where product is reproduced and somewhere between production and delivery, and therefore too late to achieve any price recovery on? On the power side of the business also we're roughly a quarter of the way through our customer base in terms of finalizing price negotiations. So it's a process that takes a little bit of time, as I'm sure you can appreciate every customer sensitive to price increases. But is it a topic that is unfamiliar to customers right now? No. I think the awareness in our customer base and in the market in general around supply side price pressure is fairly high. And therefore we continue to work through with the appropriate sensitivity. Obviously our expectation is that we have agreements kind of finalized for the vast majority of the customer base, and well within the next couple of quarters. So it's a process that we work through. And so far we're positively encouraged by the progress that we've made even though no customer likes to hear that there's going to be price pressure.

Karina Franco Padilla: I guess one sentence to add – it's just more for clarity than anything else because I'm not sure if it was clear, that on the transit side of the 20% and roughly 20% customers that we've already agreed to price increases, that's based on the existing 2022 build plan. So, we should expect to see some benefit of that. And again, others are not – the other 65 of are either, in current negotiations. So, we still have to conclude those we started based on kind of order priority based on our build plan. So, we do expect to see some benefit from that, obviously in the latter part of the year, the remaining call it 15 percentage is based on just where the phase of the build plan that was or contractual obligations. It just didn’t allow us to facilitate any type of pass through. So, I just wanted to clarify that.

Gareth Joyce: Has one last comment Courtney, as it relates to sort of overall gross margin components, we’re producing batteries out of our LA facility and our Burlingame facility at the moment. Burlingame is really intended for early stage production, as we continue to advance our business and work on development of our battery program. We’re really excited for the Greer facility to come online towards the end of the year, because that is a purpose built facility for large scale production. And so we obviously are going to continue to work on the cost efficiency side of the equation as well, and we do see opportunity there. So it’s working on both sides of the business to keep going at the gross margins.

Courtney Yakavonis: Okay, great. Thanks. And then, you gave some comments just about the successive increase in best production month-over-month. Can you just give us any insight into your production for on the Powered side? And then also, just as we think about the year, how to think about the cadence as you continue to scale, acknowledging that the new facilities coming online later in the year?

Gareth Joyce: Yes. As I said, we’ve seen a step up in production output for the Powered business in Q1 as is evidenced by the results. With the delivery of 280 [ph] in just this quarter, that’s more than the sum of all vehicle sets delivered in the entire of 2021. So significant increase in production output and yes, we’re running our production footprint close to maximum scale right now between LA and Burlingame. And so we’re very eager to get our Greer facility live as well as we look to capitalize on the opportunity that, the demand side of the business we’re seeing. We mentioned our last call and I’ve reiterated today, we continue to see a very favorable demand in the market. And so yes, we will maximize our production output through the two facilities we have operating at the moment until the third one comes on stream at the end of the year.

Courtney Yakavonis: Okay. Thank you.

Gareth Joyce: One of the comment, maybe just to put in perspective the production capability. We talked about 82 megawatt hours of battery production in Q1 being a significant increase on what we produced in prior years. Yes, the facility in Greer is going to be a multi gigawatt-hour facility. So it gives you a sense of the kind of scale capability that we’ll have once that facility goes live.

Operator: [Operator Instructions] Your next question comes from the line of Brian Johnson from Barclays. Your line is open

Jason Stuhldreher: Hi team. This is Jason Stuhldreher on for Brian. I was hoping to maybe just ask a question on the quoting environment, recognize here down, talk about backlog on a quarterly basis, but just kind of holistically as we think about the pipeline right now, maybe both in Transit and on with Powered on initial awards look, on the van side, but then I guess more specifically on the light, well, on the truck side, both medium duty and heavy duty, are you guys seeing any kind of hold up or slowdown in the quoting process there? I mean, it’s clearly not going to be as fast of moving market as a bus and van, but it just heard from others that quoting environment has kind of slowed a little bit and wondering if you were seeing the same thing.

Gareth Joyce: Jason, I’m terribly sorry, but your microphone cut out in the first sentence, sorry. So the key part of the question, I must apologize. I’ve got the second part. Could you just reframe it? I apologize.

Jason Stuhldreher: Yes, briefly stated the quoting environment specifically for medium and heavy duty trucks. Are you seeing that clearly that’s a slower moving market, but has that market quoting pipeline kind of slowed more than expected over the last few quarters? It just seems like others have kind of hinted at that.

Gareth Joyce: So yes, we don’t, I’m not going to get into backlog today, because we do talk about our order backlog once a year and we went through that last quarter. But yes, I will just talk about the general sort of market dynamic. I mean, in our prepared remarks, we refer to additional agreements that have been announced. So there’s, continued demand and interest and specifically on the sort of medium duty, heavy duty truck side. And I certainly we have not seen any tangible change in consumer interest over the past quarter. I would say that one has to bear in mind in the overall market dynamic right now. Diesel prices have come under significant pressure over the past few months. And yes, that’s challenging the total cost of ownership, economics of traditional combustion engine operations for all commercial vehicles. But certainly on the heavier duty side probably more significantly given their exposure to diesel prices and fuel consumption. So from our perspective, no, we haven’t seen any material change in consumer interest.

Jason Stuhldreher: Understood. And maybe just another question on what you are seeing in the quoting in the order book or the pipeline, with cell, with battery raw mats, obviously high right now, and cell availability limited, you guys have anything, I think cell availability locked up through 2028. Are you seeing any incremental interest from customers, specifically because you have good cell availability, through the midterm, whereas it frankly might just be difficult to get battery raw mats or even packs from other suppliers right now?

Gareth Joyce: Yes. So very good point. You noted that sort of raw material price movement. Yes, that’s a real issue. And like anybody who’s in battery technology, we have some exposure to it, but certainly our strategic execution of our entry into an agreement with LG Energy Solutions, for a long-term supply agreement was something we anticipated supply being a core strategic advantage. And it is definitely showing benefits today. We like the position we have with LG they’re one of the largest players in the market and produce a very high quality product. And so, we find that to be one of our strengths at the moment to have access to cell supply and as one of the key inputs to our production process that’s something that does allow us to have confidence that we can continue to meet them on.

Jason Stuhldreher: Okay. Understood. Thank you.

Operator: We are out of time. I will pass it back to Mr. Joyce for closing remarks.

Gareth Joyce: Well, I just wanted to express my sincere thanks to all of you for joining us today. It’s a great opportunity for us to update everybody on the progress we’re making here at Proterra. And equally I just extend a thanks to our team. We have incredible team of people, who are very devoted to the mission and I just wanted to say my sincere thanks to them for their hard work. And look forward to talking to you all on the next call.

Operator: This concludes today’s conference call. You may disconnect.