Q3 2022 Proterra Inc Earnings Call
Diving first into our execution in Q3.
We generated record revenue of $96 million in the quarter.
The growth of 55% year over year was driven by new highs in revenue for both <unk> power and energy and <unk> transit.
Okay.
<unk> power and energy revenue grew more than three times year over year to a new high of $40 million driven by both <unk> powered deliveries more than tripling year over year to 292 battery systems as well as for Terra energy deliveries jumping to a new record of more than 22 megawatts.
765% year over year on Portera powered in particular, we continued to experience strong demand with delivery to nine different Oems in the quarter spanning a wide range of vehicles from school buses to coach buses.
Two class 3578 and off highway commercial vehicles.
And we're really starting to see a meaningful uptick in demand for electric school buses in particular.
Following the announcement of Daimler truck groups Thomas built buses delivery of its 200 <unk> powered <unk> Julia Electric school bus approximately $900 million.
It was awarded just last week, specifically for the purchase of Electric school buses to 377 school districts across the country.
Orders must be placed with this funding by April 2023, and around another $1 billion.
Of the $5 billion program is expected to be released in 2023.
September 30th Prokaryote powered has now delivered battery systems to more than 1300 vehicles.
Since our first deliveries in 2018 and more than 1000 in the last four quarters alone.
Importantly, this excludes <unk>.
Battery production, including per carrier transit rose, 51% year over year to 94 megawatt hours in Q3 2022.
And we have now cumulatively produced just under 750 megawatt hours of heavy duty batteries for commercial and industrial vehicles.
With our new factory in Greer, South Carolina, which we are calling powered one scheduled to come online by year end, our battery production output should continue to grow materially in 2023, just as we expect our OEM partners to hit critical milestones in the development of the <unk> powered vehicles on the way towards startup production.
For instance, <unk> showcased its new <unk> powered 20 ton electric excavator last week at the <unk> 2022 trade fair in Germany ahead of its expected introduction to the European and Japanese markets next year.
The shift group held a ride and drive event in October for its Blue Orca class III electric delivery vehicle using <unk> powered batteries.
Volvo trucks introduced its second generation for tariff powered voltage zeroes full production verification.
And as early as two new premiered as per Terrapower City Volte 12 electric bus at the <unk> level, a transportation conference.
And bus take unveiled its VDI full 50 per Terrapower electric transit bus at the Australasia, Boston coach expire last month.
In addition to this <unk> powered also signed a supply contract with a new customer in Q3.
Rev Group's EMC, formerly known as Eldorado National California.
We will be supplying our <unk> series batteries for E&C is 30 to 35 and 40 foot access EV battery electric transit buses in North America.
This one is significant as it is our first <unk> powered partnership that serve the same end market as per tire transit and underscores the high confidence we have and what our transit product offers beyond the battery.
And also support our explorations to capture as much value as possible from the rapid adoption of electric transit buses across North America.
We believe our <unk> powered business is starting to gain meaningful momentum.
<unk> energy reported a very strong quarter in Q3 supply chain limitation that had held back project execution in recent quarters eased and we completed our largest single customer project to date at nine megawatts of charging infrastructure installed for Miami Dade Transit.
While also experiencing continued growth in non transit bus vehicles segments, most notably school buses and this is prior to any funding from the EPA, New Clean School bus program.
Q3 helped demonstrate how <unk> energy with more than five megawatts delivered to non transit bus customers in the quarter is expanding beyond the transit bus segment. So all in <unk> energy delivered more than 22 megawatts of DC fast charging solutions up 765% year over year.
This included delivery of three of our megawatt scale charges.
To put this in perspective 22 megawatts is the equivalent of more than 3000 residential EV charges largely on <unk> revenue grew 12% year over year to a new high of $56 million as we achieved a new record in deliveries of 60, New electric transit buses along with five <unk>.
And buses in the quarter.
Improvements in our production processes that have recently been implemented and the hard work and focus of our team enabled us to grow our bus production and delivery to a new record even without adding a full second shift.
To be clear despite our execution in Q3, and the record production and deliveries achieved <unk>. The coast is in no way clear when it comes to the supply chain and we continue to confront challenges.
Particularly with regard to wiring harness shortages.
But overall, we're feeling more confident about our ability to grow transit production over the next couple of years.
All in <unk>.
As you can see Q3 was a breakthrough quarter for us all around.
Based on our performance through the first three quarters and our current use on Q4, which has 17% fewer working days in Q3 due to the holidays and downtime for year end inventory.
We are maintaining our 2022 revenue guidance range of $300 million to $325 million.
Representing growth of 24%.
234% year over year.
We're not narrowing our guidance at this juncture as we continue to face some uncertainty around the supply chain that could affect tons of production in the final quarter of the year.
Now I'll pass it over to our CFO Karina Padilla to provide deeper insights into our financial performance.
Thanks Garrett.
Sure I dive into the details of our financial performance in the third quarter regarding revenue gross margin adjusted EBITDA and cash I'd like to take a minute to celebrate and congratulate all of the procurement team members for achieving another record breaking revenue quarter exceeding the $95 million revenue Mark.
Now on to our financial performance, starting with topline results.
Consolidated revenue was $96 2 million rep.
Representing growth of 55% year over year and 29% sequentially.
Pro tariff Howard and energy grew 239% year over year, and 68% sequentially to reach $39 $9 million in quarterly revenue for the first time.
<unk> powered and energy represented more than 40% of total revenue in the quarter.
More than doubling its 19% contribution in Q3 of the prior year.
For perspective, we reported more revenue in the third quarter of 2022 than we did through the first three quarters of 2021 combined.
Growth was driven by triple digit percentage increase in deliveries for both procure empowered and pro Terra energy <unk> power delivery grew 274% year over year to 292 battery system.
We delivered a record 16, new electric buses in the quarter as well as five pre owned buses.
New Electric transit bus deliveries in Q3 included Miami Dade Transit, which received the first 29 of its total order of 75 electric transit buses.
And Dallas area Rapid transit, whose fleet now includes eight <unk> electric transit buses, including Smart bus in Troy, Michigan, which received its first EV buses ever and.
Wayne County Airport authority servicing the Detroit Metropolitan airports.
Moving on to gross margins and adjusted EBITDA.
We reported a gross loss of $1 2 million in the third quarter.
This compares to a gross profit of $2 7 million in Q3 of 2021, which included a onetime warranty benefit and a gross profit of $555000 in Q2 of 2022.
Our Q3 gross margin was negatively impacted by a high mix of delivery volumes still subject to legacy contracts with pre inflation pricing.
For perspective.
Approximately 40% of this quarter's revenue was delivered under these legacy contract.
We also incurred more than $2 million of startup costs associated with our powered one factory that is scheduled to begin production by the end of the year.
<unk>, we continue to stay laser focused on execution.
Q3, gross margin benefited from better labor utilization and fixed cost absorption from our record delivery volume.
We also saw significant improvement as a result of tight cost controls, we've implemented particularly around freight expedite.
However, these benefits were more than offset by the higher cost to deliver our legacy contracts in the quarter and onetime powered one startup costs.
Our adjusted EBITDA loss in Q3 was $46 million driven.
Driven largely by our operating expenses of approximately $57 million.
Plus noncash stock compensation of $5 million.
Operating expense in the quarter grew $24 million year over year. This includes $1 $6 million related to startup costs per powered one factory that is under construction.
If I were to break down the primary drivers of our growth starting from largest to smallest they would be as follows.
45% of the year over year growth in our operating expenses came from higher cost specifically related to our facility as well as the insurance and taxes related to support those facilities.
For example, one of our facilities has experienced rent increase of more than 56% over the last three year period.
And is estimated to increase over 250% over a five year period from 2019 through 2024.
30% of the operating expense growth was driven by research and development costs dedicated to support our strategic growth programs.
And 15% was from general and administrative expenses to support the growth of our business and the expenses relating to operating as it public company.
Finally on cash.
We continue to be supported by a strong balance sheet.
Ending the quarter with $408 million in cash cash equivalents and short term investments.
As we've been mentioning since the beginning of the year, we are expecting a higher than normal cash burn in 2022 as a result of our investment in our powered one factory.
Consistent with Q2 of 2022, there were a number of discrete investments and timing factors that led to higher than normal cash usage in the quarter.
Total cash usage in the quarter was $115 million. This included $14 million in Capex, almost all of which was related to the construction of powered one.
$25 million related to a strategic equity investment in a privately held entity that we expect to diversify our domestic cell supply into other chemistry.
Which Gary will discuss in greater detail in a few minutes.
A $20 million increase in accounts receivable due to a significant portion of our bus deliveries landing late in the quarter as well as a $16 million increase in inventory.
The growth in inventory is strategic and deliberate with most of the increase in raw materials, 90% of which was to support the power and energy business.
The growth in inventory as I mentioned is intentional to prepare for the start of production at powered one by the end of the year, while ensuring smooth production to support on time delivery to our customers across both business units.
Excluding these items cash usage was closer to $40 million in the quarter.
Cash and liquidity is a top priority for us and it will continue to be.
We are allocating our cash to the areas. We believe are the most critical to reinforcing our market leadership and positioning us for growth in the years ahead.
Ending the quarter with a cash and cash equivalent balance of more than $400 million.
We believe we have the flexibility to navigate these times of economic uncertainty and capital market volatility net advantageous competitive position just as electric commercial vehicle adoption begins to accelerate.
I couldn't be more excited about what lies ahead for <unk>.
On top of our leadership in battery technology the.
The strength of our balance sheet and the breadth of our established commercial vehicle partnership. We now expect to have additional tailwind from multiple government programs.
So it may not be a smooth right given the volatility we're seeing in the global markets and continued challenges with supply chain disruption geopolitical instability and inflation.
I believe we have the fundamental ingredients to deliver on our financial commitments and generate strong growth and shareholder returns over the long term.
And with that I'll pass it back to Gary Gary.
Thanks Karina.
Spent the bulk of our time on this call on our Q3 performance, but I think it's important to spend a few minutes clothing, Nicole with some bigger picture commentary on the outlook for the electric commercial vehicle market and our strategy to capture the Roc target market opportunities.
<unk> has been a central player in the electric commercial vehicle industry for many years now as a leader in heavy duty battery and electrification technology.
And while we have enjoyed solid growth in deliveries and revenues over the years. It has become more and more obvious recently that we're merely scratching the surface and we believe that commercial vehicle electrification is on the verge of going mainstream.
Okay.
Just the last few months.
Multiple programs in the United States have either launched or be past that provide an unprecedented level of funding to help accelerate the adoption of cleaner.
<unk> electric commercial and industrial vehicles.
First and foremost.
<unk> have been announced for the first year of funding from the approximately $7 billion dedicated to zero emission draw the buses and school buses that was approved as part of the bipartisan infrastructure nor of 2021.
On electric transit buses recipients of funding from the loan or low emission vehicle program were announced in August was $829 million explicitly dedicated to zero emission buses and related infrastructure.
Suggesting significant growth in orders across the industry over the next few quarters.
Importantly, another batch of around $800 million in awards will be announced the game next year and for that matter each year through 2026.
Separately on electric school buses recipients of the first year of funding from the Epa's New themed school bus program were announced last week.
For the first batch of non entered $65 million of awards for fiscal year 2022, the EPA received applications for more than $4 billion totaling 12000 Electric school buses.
And though as much as 50% of the awards could it be given to low emission buses block propane, 95% of the vehicles that were awarded funding where electric school buses.
Total about $900 million.
Was awarded for the purchase of more than 2350 Electric school buses spanning all 50 states plus Puerto Rico.
Recipients must use this funding to or robust by April 2023, and the bus must be delivered before October 2024.
And we expect up to another $1 billion of funding out of those $5 billion program to be released in 2023.
Now beyond this funding dedicated to zero emission transit and school buses the new inflation reduction Act passed in August 2022 provides an even greater level of funding to support the electrification of other commercial vehicles from delivery vans to class eight trucks to off highway vehicles.
The center piece of legislation for our industry is that commercial cleaning vehicle credits of up to 30% of the price of used zero emission class four to class eight commercial vehicles.
Up to a maximum of $40000 per vehicle.
When this credit goes into effect in 2023, we expect it to be transformational for electric commercial industrial vehicle demand.
Unlike passenger vehicles as many of you know commercial vehicle demand is significantly driven by vehicle capability and total cost of ownership.
Additionally, new state regulations in California, and New York will ban the sale of internal combustion medium and heavy duty trucks by 2045 and now the commercial cleaning vehicle credits should help make the total cost of ownership of electric trucks and commercial vehicles, even more competitive with diesel.
And most importantly for Portera we.
We expect to be able to apply for the battery production credit of $10 per kilowatt hour for domestic module manufacturing.
So with these programs starting to unfold. We believe we have entered a new era of demand for commercial vehicle electrification.
Yes.
Our primary goal is to be the Premier battery and electric powertrain technology provider to the commercial vehicle markets, particularly in our core markets of North America and Europe .
There are two critical elements of our strategy to achieve this goal.
First is to develop and maintain technology leadership in the marketplace that not only meets today's demand that can accelerate tomorrow's secondly.
Secondly is to rapidly ramp localized manufacturing capacity and supply chain.
On the technology front, we remain a leader in heavy duty batteries in electrification technology demonstrated by the breadth of vehicle programs and Oems. We are expect to be supplying and our best in class Gravimetric and volumetric energy density cycle life and safety characteristics.
Our battery technology today is centered on MCM nickel based cylindrical cells.
<unk> already leads the market in performance for all of the advantages it offers.
We still see this as the foundational chemistry to our product portfolio.
We have also made a strategic equity investment in a battery cell manufacturer that we expect will provide us preferred access to lithium iron phosphate or <unk> as it's malandrino and battery cells that will be manufactured in the United States, which will not only help us expand our product portfolio to a broader set of the.
Electric commercial vehicle market that we don't target today, but also helps us secure a local supply of LLP battery cells.
Importantly over 90% of iron based cells are produced in China, today, and making them perfect for our customers focusing on localizing the supply chain.
So this should provide us with another key strategic advantage that enables us to extend our value proposition with complementary cell chemistries to access new market opportunities.
On the manufacturing front, we're taking a bigger step forward so fall with our new powered one factory in Greer South Carolina.
This will not only be our first purpose bolt high volume battery manufacturing facility that will multiply our capacity, but we believe it will be the largest battery facility in the United States dedicated exclusively to heavy duty commercial vehicles to date.
And we remain on track for startup production by the end of 2022 and have made significant progress.
<unk> the facility over the last few months, we've completed installation of the first module on at the factory last month and we've begun building. The first <unk> of our new H series battery on the production line over the last few weeks.
We are also working on the installation of the second module on it powered one.
Bringing it all together I will conclude the call with three key points.
One.
We reported record results in Q3 with triple digit delivering growth at both <unk> and <unk> energy complementing record <unk> production and deliveries to drive record revenue of $96 million in the quarter.
We believe commercial vehicle electrification demand in the United States has entered a new era with billions of dollars of funding from multiple government programs all starting to become available.
And three.
Through our integrated battery technology, we believe that we have positioned ourselves to be a central player in this industry with a strong balance sheet healthy production capacity going into 2023, and a leading product platform with a well positioned product strategy for the future.
So finally on those.
The strong belief that our team.
Our culture and our ability to execute has been and will be a competitive advantage.
I'd like to thank the <unk> team for their tireless work and commitment to our mission.
Our progress is a direct result of our team's effort for which I am thankful and I have every confidence our team will help us remain a leader in this market.
With that we'll open it up to Q&A.
Yeah.
And as a reminder, that is star one if you would like to ask a question. Our first question will come from the line of Mike Brown.
Brown with da Davidson.
Go ahead.
Yes, Hello, good afternoon, and thanks for taking my question.
Can you hear me okay.
We can thank you mark.
Okay great.
So it looks like you're targeting almost maybe even a little bit above 100 transit buses.
Fourth quarter here at least maybe at least.
What's your confidence level, there that you can actually have the supply chain to get that done.
Further for the expansion in your run rates in 2023.
Are there any major contract in two days. So you can make next year, a little bit lumpy from quarter to quarter, you see a smooth ramp up.
Throughout the year.
Okay.
Mike I'll tackle the first part of the question Im not sure where you're calculating that number from.
God is 300 to 325 million.
Our current year to date number probably you want to have a look at that again.
Yes, we don't we don't give guidance by business unit, but obviously as we navigate the before.
The fourth quarter, we have a couple of dynamics, we got to think about 117% fewer working days in the quarter.
Two from an energy business point of view.
Really strong Q3, where a lot of big projects. We've been working on came together in the quarter that business will continue to be lumpy as we've seen in the past.
Three we're still working through a very challenged supply chain environment. So these are all dynamics, we had to think about as we considered.
<unk> from now through to year end.
And we are navigating these dynamics, but we remain confident that.
The growth opportunity that lies ahead and the demand that's out there is going to continue into next year and we're excited about where we're positioned as we go into year end.
Your second question unrelated to <unk>.
Alright second question relating to how we see lumpiness in.
Next year we're.
We're not giving guidance on next year at this point.
That's something we'll talk about more in our next quarterly call in Q1, which is typically what we do annually.
Okay.
Okay.
Maybe I can just trying to swing over to.
Your school bus comments.
I definitely will check my Alright transit bus numbers there, but on this on the school bus program.
Do you feel that your partner in the type C School bus Thomasville will get its fair share.
Orders from the EPA subsidies.
Have you been told that they can build these buses all the way through 2024.
Given the next tranche that's coming most of these will be built in time for next school year 2023.
Okay.
There are a large number coming up I guess in the second quarter of 'twenty. Three if you have a lot of pluses to build by that point or a bus bus guys. This is to build upon.
That point.
Yes, so we.
First of all I enjoy a very constructive and healthy relationship with the team at Daimler in Thomasville School buses group.
Barry just announced as we mentioned in our script there 200 C to.
Julie Battery electric bus that's being delivered.
Clearly momentum building in that business.
If you look at the awards under the Epa's Clean School bus program. There was 2350 electric school buses that were awarded funding.
Just recently announced.
And so yes diamond has been a very strong participant in that market enjoying healthy market share.
We worked together with them I have a lot of confidence in a product.
I believe that they're going to continue to be competitive in that market segment.
As far as volume of bus production goes and those vehicles being delivered to the market.
Yes, we don't talk about our customers.
<unk> volume programs and forecast because really that that is programs that they run.
I would just close out by saying that we are very excited about the fact that there is.
Strong momentum in the school bus market, Yes, we love. The fact that the market has responded well to narrowing that families are going to put their children onto clean quiet school buses.
Lance will them to and from school so.
It's just great to see that.
Momentum is building in the market to electrify that product.
Okay great.
And then I just wanted to ask about shift group into Blue arc product.
We saw the vehicle.
We drove it we loved it all sounds good.
Right now theyre going to a few hundred units next year, probably 1000 2024, and then their guidance about 3000 units in 2025.
This is not an easy company there and also manufacturers they have no need to clear it exaggerated out there. So it does seem like a.
Pretty real.
Give us on what they know.
I guess my question is on mix. This is a class three through five vehicle.
And 3000 units in 2025, or even 1002 thousand 24.
That could be appreciable percentage of your sales by then.
The sheer number of vehicles being delivered.
The average selling price for Terra appreciably lower than let's say a school bus.
El Dorado is how do we need to kind of.
And our models for 2024, so kind of lower ASP on average or is it similar close to the broader range.
So first of all.
Again, Mark we're not going to comment on our customers' bold plans and volume forecast.
But we've been working very hard with the <unk> team as they've done the product development on that vehicle in validation testing.
We enjoy a really healthy working relationship with that team and we're very excited to see them bring that product to market.
Yes. Your question around mix effect is relevant in that.
We see Nuttall.
Battery electric commercial vehicles are equal.
What we really like is that we're building out a healthy portfolio of product that varies in energy.
Energy on board right. So.
The fact that we are developing our portfolio. So it gives us a good sort of.
Blended mix that we expect will smooth out over time and not.
Not see too much lumpiness and mix effects in our volume development.
Okay, well, that's great color I'll pass it along thank you so much.
Thank you Mark.
Yes.
Our next question will come from Steven Fox from Fox Advisors.
Please go ahead hi.
Hi, good afternoon.
I'm struggling a little bit with the free cash flow Burns in the last couple of quarters.
Can you maybe talk about the plan to start moderating. These cash flows there is.
There is on one hand, you guys are facing a lot of growth in coming quarters on the other hand, even though you are calling out recent investments in inventory and.
Timing youre going to face more of those decisions going forward. So how do we get comfortable with the idea of that.
Free cash flow burn, so you're going to start to consistently moderate.
And then I had a follow up.
Yeah sure Stephen I'll take this one and then Gary can add anything.
So first of all the $115 million of cash rate is.
Usage this quarter.
Is the highest that we've seen it was it was very heavy in investment is as I mentioned earlier, there's $15 million of Capex to two.
The almost completion of our powered one factory, we had $25 million in that strategic.
Investment $60 million tied really to the inventory growth as we get ready to start production empowered one and then $20 million in our accounts receivable due to the late delivery deliveries late in the quarter that were month re deliveries that those don't come due strictly due to timing.
If I look at if I strip out the what I'll call investments tied to the growth of our business.
These are specifically tied to strategic deployments for the growth really you end up with $40 million I'd say of cash usage. So that's roughly 35% of my cash burn in Q3 was went towards what I would call to run to run the business on a year to date perspective, if I were to kind of do that same math.
Hap.
There's about $140 million of strategic deployment to help.
Grow the business on call. It a year to date of $2 50, tusa over 50% about 55% of that is going to two strategic deployment. It's really upon the completion of powered one and as we start production.
Youre really going to start seeing some of that.
All I'll say.
Go back to a normal more of a normal trajectory, but we still unfortunately this is a very capital intensive business that we need to be sure we're able to ramp and start production and need to have everything ready before you generate a dollar of revenue.
That's very helpful and then for a second question.
On the cost side, you talked about 40%.
Your contracts are still on legacy terms.
Sort of the timeline for shifting that too.
Current inflation.
Approaches and how does all of that play into <unk>.
Supply chain that could still get stress for your products given all of the government funding thats going to be enabled next year. Thanks.
So I'll start by saying that as you know we started in April in the spring evaluating all of our contracts there were some contracts that had.
Inflation.
Clauses in there that were very easily two to work through there were others that did not and even those that did not we had conversation with each of our customers.
And as we've mentioned, it's really through the end of 'twenty, two and not until you get into 'twenty three that you start lapping the legacy contracts. These are contracts that were signed in 2018.
So obviously, we've had different varying levels of success on what we have been able to.
To implement and to be honest just as you finished implementing one contract then you get hit with another round of inflation, what we've seen from an inflation perspective continues to be at a historical high so.
If I were to just.
At a high level, it's really not until 2023 that you really start seeing the benefit that we lap from the legacy contracts in all of our contracts going forward on both the transit as well as the power side do have inflationary classes in there and Thats just become our standard contract practice.
And I'm sorry, you had a follow up question just on supply chain, yes within that context manage its continuing to manage the supply chain inflation, given what you just highlighted that could be a very strong.
Against the very strong growth here, especially for buses next year.
Yes, I think Steve.
Steve.
Chime in here.
Our supply chain continues to be a challenging environment.
And yes, we've developed our management operating systems. During the course of this year to become more agile and flexible to deal with us.
A very unique set of circumstances, we've been in for some some time now.
Nearly two years.
So we expect that to continue going into next year.
It does two things for us number one it obviously means.
It means that youre, having to navigate the challenge of availability, but also the pricing pressure on the inflation side, but in addition to that it continues to drive some inefficiency in our operations because you're really not flowing your production lines as efficiently as you would like to and can.
So that's going to be a factor that will continue into next year as we as we look ahead.
Just being increasingly developing our competence to be able to manage our way through that so the good news is karina said I think on the contract side, we've done a lot to work with you too.
Negotiated with our customers and improved pricing positions.
You will start to see the impact of that going into 2023, but certainly it is not a new.
Normal environment from a supply chain point of view. So we're going to have to continue to be really focused on that.
Got it having said that.
I would I would say that we've talked about this on a number of calls.
We've also been very intentional about building out our team our leaders.
With experience in running.
<unk> companies and.
As of now scale up business not a startup.
Increasingly developing the competence around executing in environments like this and.
We want to just continue to develop our track record for delivering against plans.
Great. That's all very helpful. Thank you.
Thank you thanks, Steve.
Our next question will come from Jordan Levy with true security.
Good afternoon, Carol Curry and I'm glad to be on the call and I. Appreciate you all taking my questions.
First on <unk> energy, clearly, a very strong quarter for that group.
<unk> moved into next year I wanted to get a sense of your comfort level as it relates to <unk>.
Capacity and ability to me.
Increases in infrastructure and power quality.
Volumes ramp up.
A supplier capacity.
Okay.
Yeah, Hi, Jordan.
The sound quality on your remarks about fragrance I think I've got the direction of the question yes.
Yes.
Energy.
<unk>.
Business unit as part of procuring power and energy had a very strong quarter.
We are seeing an increasing awareness in the market of the need to make sure the infrastructure.
<unk> of the deployment of battery electric commercial vehicles, now sort of keeps up with the.
Appetite to deploy the vehicles themselves.
Certainly there's awareness amongst our customers.
And I do believe that we will see increasing levels of focus being placed on infrastructure deployment to make sure that we not only have the vehicles on the road that we have the ability to keep their vehicles on the road. So.
We've been very intentional about our business model for some years now.
We like our product portfolio.
Positioned well with our transit buses and a part of the market that it was an early adopter and is maturing very nicely.
Out of that obviously, we recognize the need to develop the energy infrastructure and we're now starting to see that.
Rollover into the other segments, where you're seeing the adoption of the battery electric commercial vehicles. So we like the way we're positioned with our business model obviously.
Very healthy a spectrum of customers starting to develop for powered as well. So you are using the technology out of the transit powertrain and scaling that part of the business. It really is starting to work well for the total product mix and product portfolio.
That's Greg can you hear me better now.
Yes, Thank you that is better.
And just as a fall.
Follow up on the battery. So investments you all mentioned just curious if that's an area you're all going to continue to explore opportunities or was this more of a unique opportunity and I guess along with that is it fair to say this would imply you've all been comfortable with any Lf pizza.
You may have done so far.
Yes, Jordan.
Ed.
Very important topics so thanks for asking that.
What we've come to learn in the market is that not all commercial vehicle customers require high energy density batteries for their vehicles.
We obviously are we build our product portfolio today on net core technology NMC technology cylindrical.
We have an industry leading product.
But we recognize that there is a segment of the market. That's also looking for something different more competitively priced.
And so adding RFP to our product portfolio, we think expands our market potential.
One hand and on the other hand, it importantly will provide us with you estimate LSP cells, which gives us implicitly additional capacity at a time, where access to cell capacity is a strategic advantage.
So we like the combination of those two factors as.
An additional element of fueling our growth potential into.
Into the future.
Okay.
And we will take our next question from sorry from Barclays and Bank of America. Please.
Please go ahead.
Hi, good evening.
So I just wanted to ask with the legacy contracts you've discussed rolling off into 'twenty three how should we think about the impact to gross margin overall in the fourth quarter, just given past commentary of expecting to be relatively flat year over year.
Yes, I think Q4 as I started off by saying.
Got you.
Supply chain.
Constraints remain a factor for us to consider and so yes. Some of the inefficiencies we have seen already this year will persist through Q4.
Obviously, the inflationary pressure is still there so I think the pressure you've seen on gross margins will persist in the short term.
Understood. Thank you.
Okay.
And as a reminder, that is star one if you would like to ask a question. Our next question will come from Tyler.
Oh from BPI Julie Please go ahead.
Hi, everyone. Thanks for taking the question so.
So if I could just go back to the equity investment on the LSP supplier from an IRR perspective, I imagine that gives.
Gives you.
The option for the $10.
Per kilowatt hour credit on that front just to clarify and then also I guess broader picture here.
Do you think about supplying the different end markets with the different Chemistries I mean, we hear a lot about RFP as you alluded to alluded to just trying to get a sense as to what that would mean for your business over the next couple of years.
Yes, so on the IRI.
We expect to qualify for the $10 per kilowatt hour battery.
Battery module credit in all of the facilities, where we are producing our batteries today.
In the instance of the expanded product portfolio.
To include a T cells, we would expect to continue to enjoy the credit for our battery module production independent of which sells we are using.
Of course, there is a several credit that goes along with DRA.
Legislation that obviously sets a b cell manufacturing level.
So that is yes.
Fairly fresh legislation as you know and we're actively working to understand that legislation in particular, how the tax treatment of the accounting on that well.
Developed but nevertheless, as I said, we expect to qualify for that $10 per kilowatt hour battery module credit for all of the battery modules, where manufacturing independent of the cell that goes into it.
So we do think.
Both the investment into this expanded product portfolio opportunity that opens up more market potential for us on top of the market that we have high confidence in our current nickel based chemistries for today.
Combined with obviously the benefits of supportive.
Legislation around these.
Tax credits really does position us well for growth into the.
Into the future long term, so we feel really confident about our strategy.
Okay, great and if I could just get another one in here. So in terms of the charging business I think at one point.
We said that 80% of transit customers also purchased the charger I guess can you provide some further color on the breakdown maybe transit versus non transit and how you are viewing that business moving forward. Please.
Yeah.
Just just for clarity are you are you talking about the <unk>.
Development of the deployment of energy charging infrastructure for non transact transit products was that the question, yes, yes.
Yeah.
As you saw in this quarter's numbers.
We were very excited about the fact that whilst we had a strong quarter for energy that was largely off the back of infrastructure deployed for transit bus charging we also did see.
Healthy demand pattern developing for non <unk> product.
Particularly around scuba sites as we're seeing electrification pickup.
And adoption pickup in that segment. So we expect to see that pattern developing that as the market segment picks up where the vehicles stock too.
Coming to production and coming to the market, we expect to see the energy infrastructure demand follow that.
Because it's kind of intuitive that yes for the product to operate you've got to have the charging infrastructure in place. So that's part one we think will continue.
Okay, great. Thank you for the time I'll turn it back to the queue.
Yes.
Okay.
And we have a follow up from Mike <unk> from Goldman Sachs.
Go ahead.
Okay.
Yes. Thank you I wanted to follow up with another question about the IRA and what it means to procure.
You've talked a lot about some of the credits are available for.
Modules for some of your customers and end users getting credits were buying vehicles.
Is there anything available to procure either from the <unk> loan program or other programs, where you can potentially.
Reduce your capex going forward or because <unk> is almost gone it's probably too late is it more for your customers to get their own loans for their own manufacturing facilities going forward.
Yes, Mark thanks.
Yes, we're very focused on our capital strategy.
Work.
<unk> on that as part of our strategic plan and yes, we very much.
<unk>.
You look to the various opportunities of funding their available through one example, you just mentioned government loan programs.
<unk> being one of them there are grants.
Our location based <unk>. These are all sort of key dimensions of our capital strategy that we've got to look at in the ATV in loan program is something we are.
Im very familiar with uncertainty.
Value of the opportunity that that could present for us.
Okay.
Alright, thanks for the answer I appreciate it.
And that will conclude the time for our question and answer session. At this time I would like to turn it back to you Gareth Joyce for any closing remarks.
Yes. Thank you well first of all I really appreciate the time you spent with us today.
It has been.
Yes, great year for Us our results in Q3 were very exciting as you see the growth in the business starting to show in our results was records across both business units.
We look forward to finishing out 2022.
Strong momentum and the entire team here is extremely excited about 2023 and what the future holds for us in.
The electrification of commercial vehicles in the U S and beyond so thank you for your time today, we appreciate it.
The rest of your day.
Okay.
And that will conclude today's conference. Thank you for your participation and you may now disconnect.
Okay.
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