Q1 2023 Proterra Inc Earnings Call
Yeah.
Thanks, Garrett as recently announced I made the difficult decision to step down as CFO for tariff for personal reasons.
Thank Gareth and the whole birds here, our family for the opportunity to be a part of this journey.
I continue to be leaving for Terra in its mission and I look forward to working with David over the next few weeks.
Now I'll provide you with a summary of our Q1 revenue gross margin adjusted EBITDA and cash for some revenue.
Total revenue was $80 million for the first quarter of 2023.
36% year over year.
And approximately flat when compared to Q4 2022, consistent with what we have experienced with flat to down sequential revenue in both 2022 and 2021.
<unk> power and energy revenue of $35 million, representing growth of 49% year over year and up 10% sequentially.
Which are empowered and energy accounted for approximately 44% of total revenue in the quarter up approximately four percentage points, both on a year over year and on a sequential basis.
Procure empowered megawatt hours delivered grew 18% year over year.
So deliveries on a vehicle unit basis were down 15% year over year to 243 units due to a higher mix of larger batteries systems per vehicle.
Energy delivered nine megawatts of heavy duty fleet specific DC fast Chargers in Q1 up 173% year over year and 38% sequentially.
<unk> revenue in the quarter was $45 million.
Of 27% year over year.
Due to both higher delivery and average price per boat.
We delivered 42, new electric buses in the quarter up 5% year over year, but down 11% sequentially due to the timing of delivery.
<unk> transit represented 56% of revenue in Q1 down from approximately 60% in Q1 2022.
Moving onto gross margin.
We reported a gross loss in Q1 2023 of $6 6 million compared to a gross loss of $3 million in Q1 2022.
And a gross loss of $20 million in Q4 2022.
The sequential improvement from Q4 levels was enabled by approximately $13 million in Q4, 2022 period charges related to supplier penalty inventory and other true ups, which were not repeated in Q1 in.
In addition, while we had higher fixed cost absorption from early stages of the powered one ramps we benefited from improved efficiency in labor and manufacturing overhead costs in Q1 compared to Q4 for example, and transit direct labor hours per bus improved 10% versus Q4 and was essentially.
Flat year over year, even as we were implementing the closure of the city of industry facility during the quarter.
We expect the consolidation of production in Greenville to continue to drive greater labor and overhead efficiencies, while maintaining the equivalent volume of output.
And as a powered one ramp is expected to continue to accelerate throughout the year, we expect further labor and overhead efficiencies at our power and energy businesses as well.
In addition to.
To start of production at <unk> also weighed on our margin in Q1 of 2023.
With capacity utilization at the facility below 10% in Q1, we incurred the additional burden of higher fixed cost absorption.
As powered one operating efficiency increases and production ramp we expect powered ones contribution to gross margin to improve.
Operating expenses in Q1 were $54 million representing.
An increase of $14 million year over year.
Approximately 50% of the operating expense growth was driven by research and development costs dedicated to our strategic growth programs.
And the rest of the growth from higher cost specifically related to sales and general and administrative expenses to support the growth of our business and expenses related to operating as a public company.
As a reminder, we executed a workforce reduction towards the end of the first quarter that we expect to lead to lower quarterly operating expenses starting in Q2 of 2023.
Sequentially operating expenses only grew $1 million compared to Q4 2022.
Our adjusted EBITDA loss in Q1 was $50 million driven largely by a gross loss of $7 million and operating expenses of $54 million offset by depreciation and amortization of $5 million.
Noncash stock compensation expense of $4 million.
Finally on cash.
As Garrett highlighted our cash performance in Q1 was our best on record with positive net cash provided by operating activities of $7 million and our cash cash equivalents and short term investments down by less than $2 million compared to the end of 2022 primary drivers were deferred revenue of $18 million driven largely by.
Prepayments from certain empowered customers.
Our net collection in our receivables in Q1 2023 of more than $30 million.
An increase in our payables and accrued liabilities of approximately $30 million that helped offset a $36 million increase in inventory.
Even with transit inventory down our total inventory increased largely due to our purchases of battery cells.
Which as Derek noted we view it.
Key strategic asset for us to support the planned production ramp of powered one.
In addition, capex in Q1 was down $9 million or 52% sequentially to $9 million. Following the completion of powered one at the end of 2022.
As a result, we ended the quarter with $296 million in cash cash equivalents and short term investments down only $2 million compared to $298 million at the end of 2022.
To be clear our cash performance was driven by working capital management not EBITDA.
But still underscores the assets, we have in our working capital and our capability and managing our cash.
And with that I will pass it back to Gary pre discussion on guidance in his closing remarks Gareth.
Thanks Karina.
So bringing it all together we made good progress on.
2023 strategic objectives in Q1.
Ramping powered one production and revenues further building on our foundation for gross margin improvement and continuing to manage our cash.
Looking ahead to the rest of 2023, we maintain our outlook for full year total revenue in a range of $450 million to $500 million.
Representing growth of between 45% and 61% year over year.
On gross margins, we continue to expect gross margins to remain negative through the first half of 2023 and.
And our targeting positive gross margins in the second half of the year.
Of course.
A lot of the improvement depends upon the pace of powered ones production ramp.
We believe we have set ourselves up for improvement in gross margins in the future taking into account expected higher operating efficiency at Howard one and the anticipated benefit of the planned closure of the city of industry facility and consolidation of bus production in Greenville.
On Opex, we continue to expect operating expenses to decline year over year in 2023.
Although now by less than our original projections.
$15 million a year over year decline due to higher than expected R&D legal and professional fees.
And cash following our Q1 performance, our cash cash equivalents and short term investments are tracking better than we expected.
We continue to expect capital expenditures of approximately $25 million for the full year 2023.
And we also aim to continue to prudently manage our working capital.
However, as we build a strategic inventory of cells and other battery components to feed all planned production growth powered one this year, we expect cash usage in Q2 to be substantially higher than in Q1.
We plan to continue to manage our cash through the rest of this year and into 2020 call.
Meanwhile, demand continues to grow for a battery electric technology offerings first and foremost electric.
Electric School bus is really starting to pick up.
Awards from the first year of funding from the EPA CE School bus program have begun to lead to growth in orders for the industry overall and <unk> in particular.
In fact.
In March the South Carolina Department of Education placed the largest electric school bus order from Mclean School bus program to date for 160, <unk> Julie Electric school buses produced by Daimler trucks as Thomas built buses that we are supplying batteries for an April <unk>.
<unk> released the first $400 million of grants from the second year of the Teen School bus program in the next $600 million is expected to be awarded later this year. In addition.
<unk> displayed in the U S for the first time, its new PC <unk> E. <unk> powered 20 ton electric excavator at clinics are in March.
Volvo trucks announced the start of series production in April of its class seven bolster zero trucks.
For Terra is supplying batteries for with customer deliveries expected in Q3 2023.
And at the ATT Expo last week procure itself unveiled its next generation battery concept.
With targeted energy dance being north of 200 watt hours per kilogram that we believe will open up new opportunities in commercial vehicle electrification and paved the way for future growth in the back half of the decade.
In closing.
With our cash cash equivalents and short term investments of $296 million in available capacity on our ABL of $43 million as of March 31, 2023, we are in compliance with our debt covenants as of March 31, 2023, and we are exploring potential options to raise new capital.
We believe we have put the pieces in place that provide a path to a higher gross margin profile in the future health.
Helping support our efforts to secure a central role as a battery in electrification technology provider to the North American and European commercial vehicle sector, just as it begins to blossom.
I can't express enough gratitude to our employees our customers our suppliers and our investors for their support as we continue to build on our foundation to be a leader in commercial vehicle electrification.
With that I'll open it up to Q&A.
Thank you we will now begin the question and answer session again, if you would like to ask a question press star one on your telephone keypad.
Just one moment please for our first question.
Your first question comes from the line of Michael <unk> of D. A Davidson. Please go ahead.
Good afternoon. This is David Johnson on for Mike.
Just a question there are so many new EV truck and bus platforms coming out if you take a look at what's in the trade shows.
What's the size of pro tariffs.
<unk> pipeline of new business day, compared to let's say a year ago.
Hi, David.
First of all.
<unk> is a standard provided.
Backlog and order pipeline information once a year.
Excuse me in our call at the end of Q4, which occurs in Q1, so we're not going to provide any updates on our backlog today.
Suffice it to say, though.
Our.
Suggests that if you spend time at the ITT show last week.
You will have noted that off per chair powered factories have found their way into a number of products there.
And we're very encouraged to see the momentum that's building in the market really adoption of clean energy.
Products battery electric technology is definitely finding its way into the commercial vehicle platforms.
A number of segments, whether it's a school bus transit bus locked commercial delivery vehicles medium.
<unk> heavy duty vehicles.
It was all there to see on display at the ACG show last week. So we're very encouraged by that and we're very pleased to see our brand in a number of the products that were on display there.
Great.
And then one last one from me you mentioned the Investor letter in your March that from terrorists exploring raising capital going.
Going forward.
What form do you think that might take place and when any kilowatt hour credits end up reducing what you need to raise.
Well, yes, we did night, we're exploring potential options for.
Raising additional funds as part of our capital and business strategy.
<unk> engaged in that process, but we're not able to provide further details on that right now.
As far as the second part of your question goes around.
Kilowatt hours I guess, you may be referencing the inflation reduction act.
Yes, we obviously.
We're very encouraged by that.
Legislation.
We believe that our product.
As is comprised with what would be required to achieve.
To achieve those credits.
<unk>.
Yes, we feel fairly certain that a posture, our our manufacturing inside of batteries too.
To date, we have received guidance from third party advisors.
That should be treated as a contra cogs item and therefore, it will improve gross margin.
But we are waiting on.
IRS guidance on that so as are any others that are in a similar position in this market, but nevertheless, we feel very encouraged by the tailwind that that legislation was provided.
Thank you.
Your next question comes from the line of Gregory Lewis of <unk>. Please go ahead.
Yes, hi, Thank you and good afternoon, and thanks for taking my questions I have the first question around the working capital I mean, clearly you guys did a great job of managing that in the first quarter.
And then just kind of as we kind of walk work through the various components was there any of the season seasonal I E should we see reverses as maybe something like receivables as the year plays on and is this kind of should we think about Q1 being.
Kind of the average or are there certain things about Q1, which.
Impact the ebbs and flows of working capital.
Hi, Gregory.
The.
First quarter cash management.
Was there.
Very good asset by the team.
We did mentioned in a previous call that Q4 was a challenging quarter for us for a number of reasons that we laid out there.
In Q1, obviously, we continue to work hard at all.
Cash management, we saw days sales outstanding.
Improved by more than 30%, our payables increased by more than 80% and our inventory increase so there were a number of factors that contributed to the cash management in Q1.
And we're going to continue to focus on it but I would just point out to answer your question more specifically that in high growth environment stock. We are in your cash consumption is as a non linear awesome.
<unk>.
We noted in our prepared remarks that we expect Q2 to be an increase in cash burn again.
Due to the investments in self purchases.
We're continuing to make ahead of the second half production ramp that we're expecting given the ramp up of powered one.
But we consider that our strategic investments are cross sells.
Critically important raw material to be able to access and have an inventory because.
That gives us the ability to meet the demand and we've worked very hard to put ourselves in the position to have access to such a critical raw material.
So non linear product.
But you brought it up.
And that kind of follows up on my next question.
Was hoping to get a little bit of an update on where battery production is at the new facility, how we're thinking about that.
Capacity ramp.
Or you're comfortable talking about or whether it's through year end or on a quarterly sequential basis and as we think about that ramp is there any way to kind of back into what.
What type of inventory number we need to get to is kind of we ramp capacity, which I believe is the plan here in the medium term.
Yes.
We started production at our power one facility in Q1 and.
It obviously goes through a production ramp.
As one would expect a new production facility will go through we're still running at less than 10% of our operational efficiency there, but as we noted again in our prepared remarks, we have seen improvements through January February March.
And into April and therefore, we expect that production efficiency to continue to ramp in growth and through that we're going to get better fixed cost absorption and obviously this was a key strategic investment in helping us.
Bold a high scale production facility that ultimately is a core part of our ability to generate better gross margins in the business.
So we're very excited by the opportunity that presents us.
Thank you.
Your next question comes from the line of Steven Fox of Fox Advisors. Please go ahead.
Thanks.
Gareth I was wondering from my visit to the <unk>.
So last week I noticed.
You guys have a technological advantage over some smaller companies newer startup types seem like they're fast followers, but theres also a whole range of sort of legacy companies that are sort of going into your space, establishing business and it's willing to take.
EBITDA losses for a period of time. So I was just wondering any thoughts on how the competitive landscape is developing as these markets become.
The realization of the scale that's coming.
It's a lot of different players and then I had a follow up.
Yes.
We have a.
Long made the following statement Steven as you know our belief is that the commercial vehicle market will continue to behave.
Consistently with what it has done in the past and.
Specifically with reference to powertrain sourcing.
There are a number of Oems to for certain products have found sufficient volume and scale to vertically integrate and producer on powertrain, but equally there are many.
<unk> out there, who given the breadth of diversity and vocational applications or certain trucks. For example have sourced powertrain solutions from tier one Oems.
It's a well established model.
And we don't believe that changes.
Just because we're transitioning towards battery electric powertrains. So we're actually quite encouraged to see a number of the Oems reaching into the space now because we know they have existing customers with existing demand patents that are likely to transfusions clean powertrains and we believe we're well.
Positioned to take advantage of that opportunity, but we've also worked very hard at building an order book.
Not only expose us to your existing OEM incumbents, but also some of the new entrants the disruptors in the market. For example, Volvo trucks is building a sort of ground up purpose, both battery electric powertrain refrigerated box truck Thats youre going to do deliveries into inner city.
Markets in Europe for example, and they recently announced their desire to bring that truck to the U S. So we like the fact that we've built out our order book with exposure to both the both dimensions of the markets.
Great. That's helpful. So basically you didn't you haven't seen anything at the trade show that I guess changed your view on the landscape for your technology.
Do you see your technology, playing out I guess.
No I don't believe there as I say, if anything we're encouraged to see the.
Incumbents in some of the larger more established <unk>.
<unk> in the market moving more aggressively into the space, we think that's going to provide.
Yeah.
Continued momentum in the market and as I said, we like where we're positioned with our product you pointed it out the start of your question that.
We have a technology advantage as you said, we believe we have.
You are very very strong technology position in the space and the team and the skills, we're able to deliver it we have the production facility to be able to meet the demand and we've been working hard to develop our supply chain capability too.
<unk> demand too.
Thank you again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question comes from the line of Sharif Ellis.
<unk> of Bank of America. Please go ahead.
Hi, good afternoon.
So you've discussed a little bit your guide on the gross margin and where capacity has kind of trended on power to one but with the assumption of gross margin turning positive in the back half are you able to give us what the underlying assumption on capacity is powered one.
Okay.
I wouldnt sort of put out a number on what our.
Production efficiency and particularly.
Capacity is because we see that is competitively sensitive information.
Having said that we do have confidence that we'll continue to ramp.
As we not only.
The scale of what what is the first line that's operational currently but we're busy commissioning the second line.
And so we believe we're well positioned to meet the demand that we have in our customer book as we move towards the second half of the year. I also mentioned that we are investing in.
The inventory to be able to feed that I would point out for example that if you look at our inventory from Q4 to Q1, you will note that it's increased by around about $35 million.
Our transit inventory is in fact down.
From quarter to quarter.
The increase was primarily in our investments in cells and other raw materials for our battery production in.
In Greer.
Greer as that ramp continues into the second half the year.
Understood and then just on the noted cash ramp in Q2, how should we think about that trending in the second half as production ramps.
Well.
Think.
It's probably insurer to consider that.
You've got to invest in your raw material inventory ahead of the production plan.
So yes, we see Q2.
And even Q3, having increased investments into inventory to seed the.
The remainder of the year as the way, we would expect the raw material bolt to occur.
Thank you.
Next question comes from the line of Jordan Levy of Truth Securities. Please go ahead.
Hi, guys, it's Henry on for Jordan, I, just want to start on the Opex side. So obviously you guys have had the workforce reduction at the end of <unk>.
Notice in your letter you talked about not looking like youre going to get to that $15 million reduction year over year and 23 I. Just wanted to ask are there any other levers or anything we can look for that you can possibly get you back to that 15 million reduction.
Yeah, Hi, John .
As we noted there.
We have.
Executed on the workforce restructuring program that we discussed on our last call.
And.
I'm very pleased that the team was able to execute that.
On time.
He is a very difficult thing to do or not I don't say that without sensitivity.
Nevertheless, we did see as you mentioned some offsets given investor continued investments in our R&D programs and also some pressure on professional fees.
We will continue to work at offsetting those cost pressures as we continue to navigate the rest of this year.
<unk>.
We are focusing on other kinds of levers that marketing side Empire tight cost controls on discretionary spending for example.
We continue to look forward to the benefits of consolidating our transit footprint in our Greenville production facility, which is going on as we speak we have now completed production of buses in our city of industry facility also on on time and on plan.
And then we expect to complete our battery production there at the end of the third quarter.
And then consolidate those operations and greater by the end of the year. So we continue to work at the levels that we haven't right.
And recognize that it's a very important.
Piece of the equation to control expenditure and help us expand our.
The overall improvement in the P&L.
Awesome. Thanks for that and then just a quick follow up you noted that the on the EBIT side, you're still seeing very strong demand from several players just wanted to look at the on the battery demand side do you guys have you seen any kind of indication of line of sight to potential headwinds to demand. If there would be go into a recession and a later later in the.
Year or do you see pretty good insulation from that.
Yeah.
Excuse me I would say.
At this point and first of all your comment around <unk>, Yes, we continue to see healthy demand there as the infrastructure Act on the inflation reduction acts of continue to sort of Boise a momentum in that market.
The rest of the market the transformation towards clean energy powertrains.
<unk> has remained a high priority from what we can see in our customer base.
And at this point given the effects of the inflation reduction act, which is really providing both supply side support and demand side.
Momentum given some of the incentives.
I would say at this point, we haven't seen any noteworthy impact.
Thank you.
No further questions at this time I would like to turn it over to the pro Taro management for closing.
Well I'd just like to thank everybody for joining us here today.
I would also extend a thanks to karina.
She should put an enormous amount of personal energy into this business over the past 15 months and are grateful to have had a commitment to helping us develop and grow quite sure to what we believe it can be so thank you all we appreciate your time today.
And we will talk.
Talk to you on the next call.
This concludes today's conference call you may now disconnect.
Okay.
Yeah.
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