Earnings Transcript for PTRA - Q3 Fiscal Year 2021

Operator: Greetings. Welcome to the Proterra 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. [Operator Instruction]. Please note this conference is being recorded. It is not my pleasure to turn the call over to your host, Aaron Chew.

Aaron Chew : 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 A.J. Cederoth. After the market closed, we published 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 the 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're subject to a variety of risks and uncertainties, and our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of 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?

Jack Allen : 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 vehicles 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 margin picked 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 Service 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 is 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 is 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. Proterra 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 Proterra Power to have supplied batteries to at least 7 different vehicle programs by the end of next year. And this is up from only 1 at the start of this year, with many more anticipated in 2023. And our new megawatt scale charger is starting to getting traction with large fleets. As evidenced by Proterra Energy having been selected by LADOT to supply 5 of our 1.5 megawatt mega chargers. So, in response to this growing demand, we have 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 waiting supply chain complications to smooth out first, as it really makes no sense for us have the labor unless we have the parts that they need to assemble. With that, let me spend a couple of minutes on supply chain. It's been widely covered supply chain has been a significant hurdle this year. And I'm sure just about every manufacturer's earnings reported 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 a 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 OEM. We had and now 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 efficiencies, 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 sub-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. Proterra Energy also encountered its own supply chain issues, stemming from industry wide shortages of key charging hardware components. This forced us to push 3 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 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 is possible that 5 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 Gareth Joyce. Gareth was promoted to President of Proterra in September, and he's going to play a major role in achieving this growth. Gareth?

Gareth Joyce : Thanks, Jack. Firstly, let me share how excited I am to help Proterra drive the confirmation of the commercial vehicle industry to electrification over the next decade. For those of you who don’t know me, I have spent most of my career in operational and commercial roles across a range of industrial businesses. At one point I was CEO of Mercedes-Benz Canada, and more recently the Chief Sustainability Officer of Delta Air Lines. Through these experiences, I've learned that industrial enterprises of the future will succeed in making sustainable energy solutions and differentiated for growth and not an impediment to growth. Let's talk a bit about the business units. First of all, the way I see it, commercial vehicle electrification we’re unfolding three phases. Phase 1 is transit buses. The first to achieve better total cost of ownership than diesel and CNG, this began in earnest in the middle of the last decade. Phase 2 is short-haul, so last mile delivery, shuttles, school buses, vocational Class 4 to 8 vehicles. This is happening today. And the next phase, Phase 3 will be long-haul. I think most investors understand we've made a name for ourselves as a leader in Phase 1. We want to share with investors the foothold we've created that has already positioned us to be a leader in Phase 2 as well. Transit is indeed at the forefront of this transformation. When we started selling electric transit buses years ago, each customer was typically ordering one or two buses a piece, recently customers have graduated to order sizes of 20 to 50 units. Through 2 totaling $60 million, Miami has ordered 75 buses from us to-date. Other multiple orders, Edmonton is at 40 Proterra electric buses and Port Authority in New York is at 36 units. Next, we expect to see more and more agencies launch RFPs and procurements for 100 plus units, Cap Metro in Austin is a great example. Last month we announced a $24 million order for 26 of our ZX5 buses, but this is just the first stage of a total procurement plan, exceeding $0.25 billion to acquire almost 200 electric buses and related charging, which we hope to be front runners for in the light of this early order. As for new transit agencies 100% zero emissions targets, a significant increase in the pace of orders will be required. Now the passage of the Infrastructure Act provides not only a significant increase in federal funding to help achieve these targets, but importantly, five years of funding. That means transit agencies don’t have worry about this being renewed each year, but can rely on us to support a long-term multi-year procurement plan. Jack mentioned $4 billion in funding for zero emission transit. So I am going to put this in better context. That's more than $800 million available per year starting in 2022, an increase of more than 500% from the $130 million allocated last year when approximately 400 new electric transit buses were deployed in North America. So you can see how meaningful this should be for electric transit bus penetration. So shifting over to Powered. Also some recent developments have been very exciting. In October we announced a new deal with Komatsu, that is not only our second partnership with them, also the electric excavator announced earlier this year, but our entry into the mining market with electric drills, bolters and load hole dumpers. Today, we also announced an expansion of our partnership with Lightning eMotors in addition to the Class 3 commercial van, we've agreed to supply batteries for their Class 4 E-450 and Class 5 F-550 electric vehicles. As part of this, we signed a 900 plus megawatt hour supply agreement through 2025 that includes batteries for Lightning’s contract with Forest River that was previously announced. The Advanced Clean Tech Truck Expo in August offered a great snapshot of the bricks of interesting commercial vehicle electrification. Our group was packed every day and we met with more than 20 OEMs in segments across the spectrum, not only OEMs seeking to electrify their vehicles, but also from new vehicle segments in general. Of course, on highway applications, but more and more, we are also getting inquiries for off-highway segments. More importantly, we think revenue is about to reach an inflection point. We saw a glimpse of it this quarter with Powered deliveries up over 140% year-over-year with only two vehicles in series production, Daimler’s electric school bus and Van Hool’s electric coach business. Over the next few months, we expect to begin shipping batteries for two other vehicles launching serial production, specifically Lightning eMotors Class 3 commercial van and Daimler’s Class 6 van. Later in 2022, we also expect to start a production for 3 more vehicle programs in the remainder of our existing partnerships in 2023. First, the Infrastructure Act $2.5 billion to $5 billion in funding for electric school buses should provide enough tailwind to the volumes for our Daimler Thomas Bus partnership. And of course, we will be working to establish new partnerships for even more vehicle programs along the way. And finally, Proterra Energy, which not only serves as an enabler of transit and battery sales, but it also provides a meaningful increase in the lifetime value for a customer and is a core contributor to achieving total cost of ownership targets for battery electric commercial vehicles. We believe we have a differentiated offering for fleet scale solutions that helps reduce both the space and cost of depot charging. And our megawatt scaled charging solution is starting to get traction, as Jack mentioned in the market and evidenced by our selection by the LADOT for five 1.5 megawatt chargers as part of a new microgrid project. There even more disruptive opportunities are on the energy front, charging management and V2G. Last month, we announced a major achievement in the successful commercial operation of a vehicle-to-grid project in which our Proterra Powered Jouley Thomas electric school bus delivered almost 3 megawatt hours of energy to the grid of a more than 50 hours using our charging solution. To put that in perspective, that's enough to power 300 houses for a day. This is not a pilot project, but a real world demonstration of how our technology can be used in a commercial setting to increase the value and potential revenue generation that electric commercial vehicles and charging bring to the table. So, as you can see, the tailwinds to demand are gathering momentum across all three of our businesses, and we remain optimistic about our business model and product positioning to capitalize on this multi-decade transformation that's underway. We invested and continue to invest strategically in our supply chain, production capacity, product development and service support capability to meet this growing demand. At the end of the day, as proud as I am of our accomplishments and growth in Q3, the fact is today's results reflect only the beginning of our journey. Commercial vehicle electrification is about one element of a broader global transformation in the way we consume energy. Not only will this require a major shift in the supply chain, but also a complete change in the way we deliver and manage energy. And what excites me most about Proterra is particularly -- in particular that foothold and technological competency in three key elements of this new era, our batteries, vehicle integration capabilities and charging. It may be early days, but Proterra is well-positioned to not only create and capture value in this new era of electrification but actually help drive and accelerate the transformation itself. With that, I'll pass it back to Jack.

Jack Allen: Thanks, Gareth. And I am really grateful to have Gareth in his expanded role. On the CFO front, we fully intend to have a permanent CFO in place by the New Year. In the meantime, we're in good hands with our Interim CFO, A.J. Cederoth. I've had the pleasure of knowing A.J. for over 20 years, as we shared some time together at Navistar before and during his time as CFO. A.J. legally qualified to help us during this interim period. So I'll have A.J. make a couple of introductory comments about himself and then talk about the financials and then we'll move to Q&A.

A.J. Cederoth : Thanks, Jack. For those of you who don't know me, I've been a finance executive for more than 30 years, including 22 years at Navistar, where I was fortunate to be the CFO from 2009 to 2013. Since that time, I've been using my experience to help various companies through transitions. And it's a privilege to be part of the Proterra team at this critical juncture in its strategy. With that, let's talk through the financial highlights for Q3 for Proterra. Revenue continues to grow, and Jack covered that. So I'll jump right into gross margins. Gross margins improved to 4.3% in Q3 versus 2.2% in Q2. The improvements can be attributed to a better mix of buses, leading to higher price realization, as well as an improvement in overall product quality, which is flowing through as reduced warranty costs. While favorable product mix can come and go, I'm pleased to see the improvement in overall product quality. This benefit should continue as we move through the fourth quarter and beyond. The improvements in margins is impressive given the challenges the company continues to manage through in its production facilities. Supplier issues have contributed to inefficient production cycles, higher inbound freight costs, and ultimately, shipment delays. We will continue to manage these challenges for at least into early next year. Moving on to the balance sheet. Our cash balance remains strong with $727 million of cash and securities at the end of the quarter. Operating cash flow was negative $13 million for the quarter as we continue to invest in our facilities and expand our product offering to grow our business. Our business is structured to grow. So we've invested in people and products to facilitate this growth, leading to increased R&D as well as operating expenses. Working capital was a source of cash of about $1 million in the quarter. On the positive side, we collected the increased receivables that were discussed last quarter, and we continue to prudently manage accounts payable. This was offset by increased inventory, as we continue to use inventory as a buffer against supplier issues. Our strong cash balance allows the company to continue to invest in its business. Revenue growth will be the key to improved cash flow for the business going forward. Finally, we reported GAAP net income of $36 million or $0.17 per basic share. This benefited from a $73 million gain from the non-cash revaluation of warrant liabilities in the quarter. In October, we announced the redemption of all warrants associated with our combination with ArcLight Clean Transition that led to our public listing. As a result, we will no longer be reporting this non-cash reevaluation in future quarters. But most importantly this action exchanged 21 million outstanding warrants for approximately 5 million new shares of Proterra. Said another way, the company completed an effective stock repurchase of 16 million shares at no cost. This is a material improvement in our capital structure for our equity shareholders. That is all I have. And I'll pass the call back to Jack for some closing comments before we open it up to Q&A.

Jack Allen: Thanks, A.J. Now as Gareth said, it's crucial to keep one's eye on the bigger picture here, and not too get too caught up in the quarterly snapshots. At the end of the day, we believe each of our businesses are ideally suited and positioned not only to take advantage of, but actually help drive the commercial vehicle industry's transformation to electric. If you step back and think about where we were entering into this year, we were a private firm with approximately $180 million in cash. Our cell supply contracted for only two more years. And we had 5 battery supply partnerships and only 1 expected to produce material volumes in the coming year. Today, as we enter into the final months of 2021, we're a publicly traded company with over $700 million of cash. We have a deal for multiple gigawatt hours per year of cell supply through 2028, and 12 Proterra Powered vehicle programs in place, with 7 of them expected to be in serial production by the end of next year. On top of that, we landed 2 of the largest electric transit buses orders ever in North America. And the Infrastructure Bill sets up an expected acceleration in orders in the coming years. I really want to express my genuine appreciation and gratitude to all of our employees from the East Coast to the West Coast that have dedicated themselves to the Proterra mission and work so hard not only to get us this far, but also enable our execution in Q3. We expect to close out this year with solid growth and we're feeling even better about 2022 and beyond. So with that operator, let's open things up for Q&A.

Operator: [Operator Instructions]. Your first question comes from Sherif El-Sabbahy. Please go ahead.

Sherif El-Sabbahy: Hi, good afternoon, everyone, and congratulations on another great quarter. So my first question is around production capacity. I believe at the Analyst Day you said there were 675 megawatt hours in Los Angeles and another 345 in Burlingame. With the added shifts and the alterations to the Burlingame facility, what's the overall annual capacity as of now?

Jack Allen: So the -- the capacity that we put in at Burlingame is what brought us to the 345. So we have over 1 megawatt hour of battery capacity in place today. As we look forward into our forecast, we clearly see that we are going to need more battery capacity. And as we've indicated, we expect to add more battery capacity in 2022.

Sherif El-Sabbahy: Understood. And then with Federal Infrastructure Bill, when do you see orders from DOTs actually materializing?

Jack Allen: Sure. I'll have Gareth take this, you have it, that one.

Gareth Joyce: Yes. Thanks. First of all, there’s still some unknowns out there as far as implementation goes. So, can't give you a definitive answer. But we don't anticipate too much in 2022. It's more likely a 2023 impact. But there may be some earlier impacts in areas like school bus and energy deployments like 2022. And we've included that sort of anticipated momentum in our past model. And so, at this stage, can't be too much more definitive because it's very fresh for all of us.

Operator: Next question, Steven Fox with Fox Advisors.

Steven Fox: Thanks. Good afternoon. A couple for me. First of all, on the supply chain. It sounds like you took some tactical approach to some of the issues with in-housing some of the components. Can you talk about whether that's a permanent solution or a temporary solution? And then when you talked about sort of supply chain issues maybe into the early part of next year, I guess I'm trying to understand why you think things sort of ease up for you? And then I had a quick follow-up.

Jack Allen: Sure. I guess probably the best way to say is, there is a lot of supply chain impacts that are affecting a lot of companies. For us, we have an ample supply of battery cells and many don't. Also the electric vehicle industry is not as impacted by the chips supply challenges that the automotive industry or the diesel engine industry has. So, right now, we kind of put those aside and we are really just focused on wiring harnesses. So, with the actions that we've taken and what our suppliers have taken, we can't say sitting here today that they'll only be impacted by the first half of the year, but we are anticipating that they will be impacting us in the first half of the year. And we're going to continue to monitor what's going on as we prepare our guidance for 2022.

Steven Fox: So just to clarify, I mean, is there a risk of sort of a bit of a cascading effect into 2022, where you catch-up on what you missed add on I think before those Q1 delays, et cetera?

Jack Allen: There certainly is the opportunity for there is a risk that production has snowballs along, but we've been at a quarterly build in the -- even with the challenges that we've had in the 50-ish transit buses a quarter. So, we don't see deterioration from that, but we want to build from that. And we'd like to put a second shift on it. So, we have the backlog to build more.

Steven Fox : That's helpful. And then just lastly, as a follow-up to the prior question. I understand that it takes time for the bill to be promoted and work through some of these agencies. But I thought there was somewhat of a wait for the bill mentality on other programs that could come free. Is that still possible or is that considered already in some of your guidance?

Jack Allen: Well, certainly we would expect that, that the bill was signed next week and the funding is led, that there will be transit orders against these funds in 2022. But the order to delivery cycle for transit can be in the 14 to 16 month range. So although we'll see orders in '22, as Gareth said, we really don't expect to see the revenue probably until early '23.

Operator: Next question Courtney Yakavonis with Morgan Stanley.

Courtney Yakavonis : If we could just follow up on the comments on the supply chain. It sounded like there is really just the wire -- wiring harness issue. Can you just remind us if that’s something that is sourced in from multiple suppliers, is it primarily a logistics issue or, just help us understand kind of what the actual issue is? And would you say that it had gotten worse during the quarter, which led to this guidance?

Jack Allen : Sure. First, thanks for the question, Courtney. So, our primary issue today is wiring harnesses. I don't want to portray this as this our only issue, but our primary issue today is wiring harnesses. Today, we do some wiring harnesses inside. We also use multiple suppliers. The challenge around wiring harness ironically is the connectors. There is a global resin shortage and that resin shortage is what's impacting the availability of the connectors. So -- and those come from Tier 2 and Tier 3 suppliers on a global basis to our wiring harness suppliers that we have in North America primarily and also in-house. So, that's the challenge. And when you have -- when you're relying on Tier 2s and Tier 3s, it really makes the communication of when you're actually going to get that part, far more difficult to predict.

Courtney Yakavonis : That's helpful. And then maybe just on a follow-up for the -- to your comments on infrastructure. Can you talk about how you anticipate your market share, as all they know that there are more substantial government incentives being allocated towards electric buses at this point? And just how you feel like you're positioned from a market share perspective both in a bus and then any implications for the Powered side?

Gareth Joyce: Well, I think, again, it's a little difficult to read our play dot, but we have an established market share presence which is industry leading. Having been a first mover in the space, we expect that we'll continue to enjoy a leadership position. But of course, as new players come into the market, the market has a certain size and they are going to gain some market share. So we expect that to normalize to some extent, we wrote that into our models, the past model had been accounted for. And we anticipate maintaining a leadership position, but obviously some dilution will occur.

Jack Allen: Then, Courtney on the Powered side, we're aligned with Thomas and Thomas is one of the leading a school bus providers in the country. So we feel like we're in a very good position there. Every Thomas school bus is sold as electric, has our powertrain in it. But also I think what's interesting about the Infrastructure Bill when it comes to school bus is, historically, the Federal government has not funded school buses. They’ve all been funded either in the local districts or at the state level. So this minimum of $2.5 billion and up to $5 billion of funding for school buses, not only it’s huge, it's unprecedented in this market. And we're very excited about that. And that can have a 2022 impact because the order to delivery cycle for a school bus is much shorter than that for a transit bus.

Gareth Joyce: And have vehicles in series production already.

Operator: Next question Brian Johnson with Barclays.

Brian Johnson : Thank you. I wanted to talk a little bit more about the Proterra Powered business. First of all, as you kind of work with LG and kind of allocate cells, does it kind of create any cap on the kind of signings you could generate either deliveries or kind of on the backlog except building around Porterra Powered?

Gareth Joyce: We don't anticipate there being constraints. We have strategically been working on our supply position for cells for some time now and through the securing of our agreement with LG after 2028 for cells, including the production of cells in the U.S. We believe we're very well positioned to be able to support our growth, which we had strong ambition for, again, as indicated in the past deck we published. So we feel very confident that we have well secured cell supply to enable our growth and feed the demand that is out there.

Brian Johnson : Okay. And then kind of second around Proterra Powered. There's been some talk around LFPs with patent expiration and potentially allowing makers outside of China to both make those and export them -- and/or export them out of China. A lot of times, commercial applications are mentioned just due to -- you're not necessarily trying to go and for sure model that kind of speeds. Have you looked at that and is there a timeframe where you could start adding LFPs to Proterra Powered?

Gareth Joyce: We at the moment are very confident in our current technology path, which is AMC cylindrical format cells, but we monitor the market constantly. We're testing different cell formats on a constant basis to make sure that we remain well positioned for where the sweet spot of what's required to power factory commercial vehicles for the future. So LFP is a technology we monitor and the dynamic you've just described is something we continue to stay apprised of and keep ourselves well-positioned. Flexibility is important, but we have confidence in our current technology pathway with AMC and cylindrical cells.

Gareth Joyce: I think one thing is important here. Building battery packs for commercial vehicles, you're managing a number of dynamics. It's energy and efficient space and weight usage combined with the safety as the paramount requirements. And then for vehicles that are designed to operate over a lifecycle, that's, 3 or 4 times longer than a passenger vehicle. And so we have a lot of confidence in how we design and architect our technology path. And as I say right now AMC cylindrical is the sweet spot for where we think we need to be.

Operator: Next question Jon Lopez with Vertical Group.

Jon Lopez : Hi, thanks so much. I had three, hopefully relatively quick ones if I could. The first one is, how are you doing -- the first one is the short term deferred revenue line dropped by a decent amount, excuse me, versus the prior quarter. Why was that?

Jack Allen : We'll have to investigate that and give you a better answer. Off the top of my head, I don't have that answer.

Jon Lopez : Well, just directionally, does that line have any sort of interplay with backlog?

Jack Allen: No. That wouldn’t have anything to do with backlog.

Jon Lopez : Secondly, just coming back to the pack side, your shipments in calendar Q3 were at least quite a bit above where we were modeling. And I'm wondering -- I know you spoke a little bit about it, but could you maybe just unpack again, like what drove that big jump sequentially? Was there anything in terms of the rhythm of the ramps of the two existing programs that causes a seasonal fluctuation or something along those lines? And within that, like, I'm wondering, do you think it's possible, your customers are perhaps trying to immunize themselves from some of these supply chain headwinds? Like, are they may be putting pack inventory in place so they don't run into an issue of their own down the line?

Gareth Joyce: No, I think it's just -- as these products are going to carry production, it's the demand for production. And we certainly don't see inventory building going on for packs.

Jack Allen: Right now, we gave Daimler full visibility into our supply base and our ability to build. So, it's really a very close to a just-in-time delivery from us to Daimler into their products.

Jon Lopez : And then the last one is just on the gross margin, and I guess I'm happy to see it, but I'm actually quite surprised that it seems like you mix shifted like away from buses and toward packs, but your gross margin nevertheless increased versus the prior quarter. So I wonder, A, can you just give us like a directional feel for where your pack gross margins are right now even say relative to the current corporate average? And is there anything looking from Q3 to Q4 that we should be aware of like any one-time items that might like lap off between the two periods?

Jack Allen: Well, we don't get into profitability by product line at this point. So, I'm going to skip the first question. What drove improved gross margin in the quarter was a better mix of buses in the revenue pile. And like I said, that can come and go. But also the improvement in quality was $1 million reduction in prior period warranty. But then that also reduces what we are accruing for warranty going forward. So, you'll see that improvement sustain itself as we move. As the business grows and volume flows through our production facilities, and we get better utilization of our facilities, that will be the big driver of improved gross margin.

Jon Lopez : I can say within that, it doesn't sound like there is anything we should consider like rolling off in Q3 and Q4 on the gross margin line. Perfect.

Jack Allen: No. It's a pretty consistent mix of revenue through 2021.

Operator: Next question, Sean Milligan with Williams Trading.

Sean Milligan: Hey, guys. Thanks for taking my question. If we stick on Powered for a little while, I was hoping you could talk through -- I think on the prepared remarks, you said you have 7 Powered programs that are in serial production. I was curious, if you could kind of talk to us about maybe how many programs are in a pilot mode and then maybe the time to go from pilot to serial production and how that looks?

Gareth Joyce: Yes. So, I will just correct something you said. There are currently two programs in serial production. That's powered school buses with Daimler and the Van Hool coaches. We expect early next year another two programs to go into serial production. And by the end of next year, 3 more. So that'll total 7 in series production by the end of next year. And then the remainder of the partnerships that we have of the 12 that we have publicly shared, is 2023 production. So, it goes from 2 this year, another 5 next year and the remainder of the 12 in 2023.

Sean Milligan: And I guess prepared remarks focused on the Infrastructure Bill. But when you look at the bill, that’s better bill that's coming up. There's EV tax credit for commercial vehicles. And then I think there's a program around plastics and Class 7 vehicles for rebates. Just curious to get your thoughts on those programs and how they might work for your Powered segment?

Gareth Joyce: Yes. There's many things proposed in that bill. And -- probably the 2 most important ones are the ones you mentioned, the incentives behind battery electric commercial vehicles and obviously, it impacts all of the vehicle segments and the charging infrastructure too. The proposals there would go along way to improve the total cost of ownership proposition materially and they are significant numbers. But, yes we don't know if that happens or not. We certainly hope it does. But we have a lot of confidence that the momentum in the market and the demand out there is a resilient and robust. And the Infrastructure Act is something that we know it’s out there and we'll continue to feel them on. As for the full year referencing, still a lot of unknowns. But it would be good for the industry confirmation.

Operator: [Operator Instructions]. Showing no further questions.

Aaron Chew : Okay. So, to everybody who were answered, have asked questions, we really appreciate your attention on the call today and you calling in to hear about our Proterra story. We look forward to talking to you soon. Thank you all very much.

Operator: This ends today's teleconference. You may disconnect your lines at this time and thank you for your participation.