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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  _________ to _________

Commission file number 001-39546

Proterra Inc
(Exact name of registrant as specified in its charter)

Delaware
98-1551379
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1815 Rollins Road
Burlingame, California
94010
(Address of Principal Executive Offices)
(Zip Code)
(864) 438-0000
Registrant's telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per sharePTRAThe Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for Common Stock at an exercise price of $11.50 per sharePTRAWThe Nasdaq Stock Market LLC





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x  No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer  xSmaller reporting companyx
Emerging growth companyx
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes   o     No  x



The registrant had outstanding 212,300,222 shares of common stock as of August 9, 2021.






TABLE OF CONTENTS
3


Explanatory Note – Certain Defined Terms
Unless otherwise stated in this Quarterly Report or the context otherwise requires, references to:
“ArcLight” means ArcLight Clean Transition Corp., a Cayman Islands exempted company, prior to the consummation of the Domestication;
“Business Combination” means the Domestication, the Merger and the other transactions contemplated by the Merger Agreement, collectively, including the PIPE Financing;
“Class A ordinary shares” means the Class A ordinary shares, par value $0.0001 per share, of ArcLight, prior to the Domestication, which automatically converted, on a one-for-one basis, into shares of common stock in connection with the Domestication;
“Class B ordinary shares” means the Class B ordinary shares, par value $0.0001 per share, of ArcLight that were initially issued to the Sponsor in a private placement prior to ArcLight’s initial public offering, and, in connection with the Domestication, which automatically converted, on a one-for-one basis, into shares of common stock;
“Closing” means the closing of the Business Combination;
“Closing Date” means June 14, 2021;
“common stock” means the common stock, par value $0.0001 per share, of Proterra;
“Domestication” means the transfer by way of continuation and deregistration of ArcLight from the Cayman Islands and the continuation and domestication of ArcLight as a corporation incorporated in the State of Delaware;
“initial public offering” means ArcLight’s initial public offering that was consummated on September 25, 2020;
“Legacy Proterra” means Proterra Inc, a Delaware corporation, prior to the consummation of the Business Combination;
“Merger” means the merger of Phoenix Merger Sub with and into Legacy Proterra pursuant to the Merger Agreement, with Legacy Proterra as the surviving company in the Merger and, after giving effect to such Merger, Legacy Proterra becoming a wholly-owned subsidiary of Proterra;
“Merger Agreement” means that certain Merger Agreement, dated as of January 11, 2021 (as may be amended,
supplemented or otherwise modified from time to time), by and among ArcLight, Phoenix Merger Sub and Legacy
Proterra;
“Phoenix Merger Sub” refers to Phoenix Merger Sub, Inc., a Delaware corporation and a wholly-owned direct subsidiary of ArcLight;
“PIPE Financing” means the transactions contemplated by the Subscription Agreements, pursuant to which the PIPE Investors collectively subscribed for 41,500,000 shares of common stock for an aggregate purchase price of $415,000,000 in connection with the Closing;
“PIPE Investors” means the investors who participated in the PIPE Financing and entered into the Subscription Agreements;
“private placement warrants” means the 7,550,000 private placement warrants outstanding as of the date of this Quarterly Report that were issued to the Sponsor as part of ArcLight’s initial public offering, which are substantially identical to the public warrants, subject to certain limited exceptions;
“Proterra” means ArcLight upon and after Closing;
4


“public warrants” means the 13,874,994 redeemable warrants to purchase common stock that were issued by ArcLight in its initial public offering;
“Sponsor” means ArcLight CTC Holdings, L.P., a Delaware limited partnership; and
“Subscription Agreements” means the subscription agreements, entered into by ArcLight and each of the PIPE Investors in connection with the PIPE Financing.
In addition, unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to the “Company,” “we,” “us,” “our” and other similar terms refer to Legacy Proterra prior to the Business Combination and to Proterra and its consolidated subsidiaries after giving effect to the Business Combination.
5


Part I. Financial Information
Certain statements in this Quarterly Report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, including those relating to the Business Combination. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report may include, for example, statements about:
our financial and business performance following the Business Combination, including financial projections and business metrics;
the ability to maintain the listing of our common stock and the public warrants on the Nasdaq Global Select Market (the “Nasdaq”), and the potential liquidity and trading of such securities;
the risk that the proposed Business Combination disrupts our current plans and operations;
the ability to recognize the anticipated benefits of the Business Combination;
costs related to the Business Combination;
changes in applicable laws or regulations;
our success in retaining or recruiting, or changes required in, our officers, key employees or directors, and our ability to attract and retain key personnel;
the anticipated success of our most recent business expansion with Proterra Powered and Proterra Energy, and our ability to attract the customers and business partners we expect;
forecasts regarding long-term end-customer adoption rates and demand for our products in markets that are new and rapidly evolving;
our ability to compete successfully against current and future competitors in light of intense and increasing competition in the transit bus and commercial vehicle electrification market;
macroeconomic conditions resulting from the global novel coronavirus (“COVID-19”) pandemic, including the variant strains of the virus;
the availability of government economic incentives and government funding for public transit upon which our transit business is significantly dependent;
willingness of corporate and other public transportation providers to adopt and fund the purchase of electric vehicles for mass transit;
availability of a limited number of suppliers for our products and services;
material losses and costs from product warranty claims, recalls, or remediation of electric transit buses for real or perceived deficiencies or from customer satisfaction campaigns;
increases in costs, disruption of supply, or shortage of materials, particularly lithium-ion cells;
our dependence on a small number of customers that fluctuate from year to year, and failure to add new customers or expand sales to our existing customers;
6


rapid evolution of our industry and technology, and related unforeseen changes, including developments in alternative technologies and powertrains or improvements in the internal combustion engine that could adversely affect the demand for our electric transit buses;
development, maintenance and growth of strategic relationships in the Proterra Powered or Proterra Energy business, identification of new strategic relationship opportunities, or formation of strategic relationships;
competition for the business of both small and large transit agencies, which place different demands on our business, including the need to build an organization that can serve both types of transit customers;
substantial regulations, which are evolving, and unfavorable changes or failure by us to comply with these regulations;
accident or safety incidents involving our buses, battery systems, electric drivetrains, high-voltage systems or charging solutions;
product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims;
changes to U.S. trade policies, including new tariffs or the renegotiation or termination of existing trade agreements or treaties;
various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability to operate our manufacturing facilities;
outages and disruptions of our services if we fail to maintain adequate security and supporting infrastructure as we scale our information technology systems;
availability of additional capital to support business growth;
failure to protect our intellectual property;
intellectual property rights claims by third parties, which could be costly to defend, related significant damages and resulting limits on our ability to use certain technologies;
developments and projections relating to our competitors and industry;
our anticipated growth rates and market opportunities;
the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;
the potential for our business development efforts to maximize the potential value of our portfolio;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our financial performance;
the inability to develop and maintain effective internal controls;
the diversion of management’s attention and consumption of resources as a result of potential acquisitions of other companies;
failure to maintain adequate operational and financial resources or raise additional capital or generate sufficient cash flows;
cyber-attacks and security vulnerabilities;
7


the effect of the COVID-19 pandemic on the foregoing; and
other factors detailed under the section entitled “Risk Factors.”
The forward-looking statements contained in this Quarterly Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors”. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 pandemic, including the variant strains of the virus, and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We will not and do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You should read this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

8


Item 1. Financial Statements
PROTERRA INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, 2021December 31, 2020
(Unaudited)(Note 1)
Assets:
Cash and cash equivalents$634,836 $110,719 
Accounts receivable, net65,041 51,716 
Short-term investments126,693 68,990 
Inventory95,377 92,330 
Prepaid expenses and other current assets9,024 7,455 
Deferred cost of goods sold1,159 2,037 
Restricted cash, current10,890 8,397 
Total current assets943,020 341,644 
Property, plant, and equipment, net49,389 53,587 
Operating lease right-of-use assets
10,113 10,310 
Restricted cash, non-current1,675 4,581 
Other assets5,921 4,789 
Total assets$1,010,118 $414,911 
Liabilities and Stockholders’ Equity:
Accounts payable$32,730 $25,074 
Accrued liabilities24,494 19,736 
Deferred revenue, current15,174 16,015 
Operating lease liabilities, current3,735 3,153 
Debt, current10,000  
Total current liabilities86,133 63,978 
Debt, non-current90,933 133,252 
Derivative liability 70,870 
Warrant liability129,330 39,670 
Deferred revenue, non-current17,208 12,206 
Operating lease liabilities, non-current7,058 7,891 
Other long-term liabilities13,512 12,578 
Total liabilities344,174 340,445 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Convertible preferred stock, $0.0001 par value; zero shares authorized, zero shares issued and outstanding as of June 30, 2021 (unaudited), 115,644 shares authorized and 115,136 shares issued and outstanding as of December 31, 2020; liquidation preference zero as of June 30, 2021 (unaudited) and $631.3 million as of December 31, 2020
 13 
Common stock, $0.0001 par value; 500,000 shares authorized and 207,621 shares issued and outstanding as of June 30, 2021 (unaudited); 156,277 shares authorized and 5,678 shares issued and outstanding as of December 31, 2020
21 1 
Preferred stock, $0.0001 par value; 10,000 shares authorized and zero shares issued and outstanding as of June 30, 2021 (unaudited); zero shares authorized, zero shares issued and outstanding as of December 31, 2020
  
Additional paid-in capital
1,515,331 682,671 
Accumulated deficit
(849,408)(608,219)
Total stockholders’ equity
665,944 74,466 
Total liabilities and stockholders’ equity
$1,010,118 $414,911 
See accompanying notes to unaudited condensed consolidated financial statements.
9


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2021202020212020
Product revenue$56,072 $40,448 $107,494 $91,111 
Parts and other service revenue2,430 1,612 5,014 4,148 
Total revenue58,502 42,060 112,508 95,259 
Product cost of goods sold54,948 38,327 105,479 86,556 
Parts and other service cost of goods sold2,241 1,391 4,845 4,183 
Total cost of goods sold57,189 39,718 110,324 90,739 
Gross profit1,313 2,342 2,184 4,520 
Research and development10,315 8,300 20,015 16,904 
Selling, general and administrative20,744 15,494 39,204 31,925 
Total operating expenses31,059 23,794 59,219 48,829 
Loss from operations(29,746)(21,452)(57,035)(44,309)
Interest expense, net29,129 727 37,926 1,366 
Loss on valuation of derivative and warrant liabilities129,789  146,110  
Other expense, net363 520 118 1,849 
Loss before income taxes(189,027)(22,699)(241,189)(47,524)
Provision for income taxes    
Net loss$(189,027)$(22,699)$(241,189)$(47,524)
Net loss per share of common stock, basic and diluted$(4.24)$(5.59)$(9.49)$(11.87)
Shares used in computing net loss per share of common stock, basic and diluted44,571 4,064 25,403 4,004 
See accompanying notes to unaudited condensed consolidated financial statements.
10


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands)
Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal
Three Months Ended June 30, 2021SharesAmountSharesAmount
Balance, March 31, 2021
115,136 $13 6,244 $1 $687,692 $(660,381)$27,325 
Conversion of convertible preferred stock into common stock in connection with the reverse recapitalization(115,136)(13)115,576 11 2 — — 
Conversion of Convertible Notes into common stock— — 7,424 1 48,780 — 48,781 
Issuance of common stock upon the reverse recapitalization, net of issuance costs— — 76,172 8 502,419 — 502,427 
Issuance of common stock upon exercise of options and warrants— — 2,205 — 1,778 — 1,778 
Reclassification of derivative liability upon the reverse recapitalization— — — — 182,554 — 182,554 
Reclassification of Legacy Proterra warrant liability upon the reverse recapitalization— — — — 87,016 — 87,016 
Stock-based compensation— — — — 5,090 — 5,090 
Net loss— — — — — (189,027)(189,027)
Balance, June 30, 2021
 $ 207,621 $21 $1,515,331 $(849,408)$665,944 
Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal
Three Months Ended June 30, 2020SharesAmountSharesAmount
Balance, March 31, 2020
115,136 $13 3,952 $ $670,674 $(506,037)$164,650 
Issuance of stock, net of costs— — 270 — 671 — 671 
Stock-based compensation— — — — 2,446 — 2,446 
Net loss— — — — — (22,699)(22,699)
Balance, June 30, 2020
115,136 $13 4,222 $ $673,791 $(528,736)$145,068 
Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal
Six Months Ended June 30, 2021SharesAmountSharesAmount
Balance, December 31, 2020 (Note 1)
115,136 $13 5,678 $1 $682,671 $(608,219)$74,466 
Conversion of convertible preferred stock into common stock in connection with the reverse recapitalization(115,136)(13)115,576 11 2 — — 
Conversion of Convertible Notes into common stock— — 7,424 1 48,780 — 48,781 
Issuance of common stock upon the reverse recapitalization, net of issuance costs— — 76,172 8 502,419 — 502,427 
Issuance of common stock upon exercise of warrants— — 2,771 — 3,802 — 3,802 
Reclassification of derivative liability upon the reverse recapitalization— — — — 182,554 — 182,554 
Reclassification of Legacy Proterra warrant liability upon the reverse recapitalization— — — — 87,016 — 87,016 
Stock-based compensation— — — — 8,087 — 8,087 
Net loss— — — — — (241,189)(241,189)
Balance, June 30, 2021
 $ 207,621 $21 $1,515,331 $(849,408)$665,944 
Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal
Six Months Ended June 30, 2020SharesAmountSharesAmount
Balance, December 31, 2019 (Note 1)115,136 $13 3,927 $ $668,178 $(481,212)$186,979 
Issuance of stock, net of costs— — 295 — 742 — 742 
Stock-based compensation— — — — 4,871 — 4,871 
Net loss— — — — — (47,524)(47,524)
Balance, June 30, 2020
115,136 $13 4,222 $ $673,791 $(528,736)$145,068 
See accompanying notes to unaudited condensed consolidated financial statements.
11


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
20212020
Cash flows from operating activities:
Net loss$(241,189)$(47,524)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization7,737 7,797 
Loss on disposal of fixed assets
137 (6)
Stock-based compensation8,087 4,871 
Amortization of debt discount and issuance costs28,346 172 
Accretion of debt end of term charge and PIK interest4,564 90 
Loss on valuation of derivative and warrant liabilities146,110  
Others384 (123)
Changes in operating assets and liabilities:
Accounts receivable(13,325)19,276 
Inventory(2,582)(2,356)
Prepaid expenses and other current assets(1,500)(6,547)
Deferred cost of goods sold878 (739)
Operating lease right-of-use assets and liabilities(55)85 
Other assets(984)979 
Accounts payable and accrued liabilities11,397 83 
Deferred revenue, current and non-current4,161 2,030 
Other non-current liabilities949 2,828 
Net cash used in operating activities(46,885)(19,084)
Cash flows from investing activities
Purchase of investments(137,087) 
Proceeds from maturities of investments79,000 40,000 
Purchase of property and equipment(5,321)(13,137)
Net cash provided by (used in) investing activities(63,408)26,863 
Cash flows from financing activities:
Proceeds from reverse recapitalization, net of transaction costs646,441  
Proceeds from debt, net of issuance costs 20,424 
Repayment of debt and prepayment penalty
(17,083)(12,787)
Repayment of finance obligation(242)(244)
Proceeds from government grants1,079 275 
Proceeds from exercise of stock options3,802 698 
Net cash provided by financing activities633,997 8,366 
Net increase in cash and cash equivalents, and restricted cash523,704 16,145 
Cash and cash equivalents, and restricted cash at the beginning of period123,697 53,649 
Cash and cash equivalents, and restricted cash at the end of period$647,401 $69,794 
Supplemental disclosures of cash flow information:
Cash paid for interest$4,853 $1,044 
Cash paid for income taxes  
Non-cash investing and financing activity:
Assets acquired through accounts payable and accrued liabilities$947 $5,558 
Non-cash transfer of leased assets to inventory465 635 
 Reclassification of Convertible Notes warrants liability upon exercise 17,696  
 Conversion of Convertible Notes into common stock 48,607  
 Reclassification of remaining Convertible Notes warrants liability upon the reverse recapitalization 69,320  
 Reclassification of derivative liability upon the reverse recapitalization 182,554  
Conversion of convertible preferred stock into common stock627,315  
See accompanying notes to unaudited condensed consolidated financial statements.
12

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.    Summary of Significant Accounting Policies
Organization and Description of Business
Proterra Inc (“Proterra”), formerly known as ArcLight Clean Transition Corp. (“ArcLight”), is a leading developer and producer of electric vehicle technology for commercial applications. Proterra designs, develops, manufactures, and sells electric transit buses as an original equipment manufacturer for North American public transit agencies, airports, universities, and other commercial transit fleets. It also designs, develops, manufactures, sells, and integrates proprietary battery systems and electrification solutions for global commercial vehicle manufacturers. Additionally, Proterra provides fleet-scale, high-power charging infrastructure solutions for its customers.
On June 11, 2021, ArcLight filed a notice of deregistration with the Cayman Islands Registrar of Companies, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which ArcLight was domesticated and continued as a Delaware corporation. On June 14, 2021 (the “Closing Date”), ArcLight consummated a merger with Phoenix Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of ArcLight (“Phoenix Merger Sub”), and Proterra Inc, a Delaware corporation (“Legacy Proterra”) with Legacy Proterra surviving as the surviving company and as a wholly-owned subsidiary of ArcLight (the “Merger” and, collectively with the other transactions described in the Agreement and Plan of Merger (the “Merger Agreement”), the “Business Combination”). In connection with the Business Combination, Legacy Proterra changed its name to “Proterra Operating Company, Inc.” and ArcLight changed its name to “Proterra Inc”.
The Merger was accounted for as a reverse merger and a recapitalization with Legacy Proterra being the accounting acquirer. Accordingly, all historical financial information presented in the unaudited condensed consolidated financial statements of Proterra represents the accounts of Legacy Proterra and its wholly owned subsidiaries as if Legacy Proterra is the predecessor to Proterra. The shares and net loss per common share, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Merger (0.8925 shares of Legacy Proterra common stock for 1 share of Proterra common stock) (the “Exchange Ratio”). Unless otherwise specified or unless the context otherwise requires, references in these notes to the “Company” refer to Legacy Proterra prior to the Business Combination and to Proterra following the Business Combination.
Prior to the closing of the Business Combination (the “Closing”), ArcLight’s Class A ordinary shares and public warrants were listed on the Nasdaq Capital Market under the symbols “ACTC” and “ACTCW,” respectively. Proterra’s common stock and public warrants are currently listed on the Nasdaq Global Select Market under the symbols “PTRA” and “PTRAW,” respectively. Please refer to Note 3 “Reverse Recapitalization” for further details of the Merger.
The Company has incurred net losses and negative cash flows from operations since inception. As of June 30, 2021, the Company has an accumulated deficit of $849.4 million. The Company has $761.5 million of cash and cash equivalents and short-term investments as of June 30, 2021. The Company has funded operations primarily through a combination of equity and debt financing. Management believes that the Company’s currently available resources will be sufficient to fund its cash requirements for at least the next twelve months.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020 and the related notes incorporated by referenced in the Company’s Current Report on Form 8-K, filed with SEC on June 17, 2021, which provides a more complete discussion of the Company’s accounting policies and certain other information. The information as of December 31, 2020 and 2019 was derived from the Company’s audited financial statements. The condensed consolidated financial statements were prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for a fair
13

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
statement of the Company’s financial position as of June 30, 2021 and the results of operations and cash flows for the three and six months ended June 30, 2021 and 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
There have been no changes to the Company’s significant accounting policies described in the annual financial statements for the year ended December 31, 2020, except for the new accounting policies adopted during the three months ended June 30, 2021 related to public warrants and private placement warrants described below, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.
The Company has not experienced any significant impact to estimates or assumptions as a result of the COVID-19 pandemic. However, there have been some impacts, specifically as it relates to parts, logistics and overall transit order timing. The Company will continue to monitor impacts of the pandemic on an ongoing basis. While the COVID-19 pandemic has not had a material adverse impact on the Company’s financial condition and results of operations to date, the future impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on certain developments, including the duration of the pandemic and spread of COVID-19 (including the variant strains of the virus), impact on the Company’s customers and effect on the Company’s suppliers, all of which are uncertain and cannot be predicted.
Segments
The Company operates in the United States and has sales to the European Union, Canada, Australia and Japan. The revenue generated outside of the United States was approximately 11% of total revenue or $6.6 million in the three months ended June 30, 2021, and was approximately 39% of total revenue or $16.5 million in the three months ended June 30, 2020. The revenue generated outside of the United States was approximately 7% of total revenue or $8.0 million in the six months ended June 30, 2021, and was approximately 35% of total revenue or $33.4 million in the six months ended June 30, 2020. The revenue generated outside of the United States in 2020 was mainly from sales to customers in Canada.
The Company’s chief operating decision maker is its Chief Executive Officer (CEO), who reviews financial information presented at the entity level. Accordingly, the Company has determined that it has a single reportable segment.
Foreign Currency Transactions
Net gains or losses resulting from foreign exchange transactions were not material for all periods presented.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for credit losses based on historical write-off experience, an analysis of the aging of outstanding receivables, customer payment patterns and expectations of changes in macroeconomic conditions that may affect the collectability of outstanding receivables. The allowance for credit losses was not material as of June 30, 2021 and December 31, 2020.
Short-Term Investments
The Company’s primary objectives for investment activities are to preserve principal, provide liquidity, and maximize income without significantly increasing risk. The Company’s short-term investments were primarily comprised of U.S. Treasury securities, and classified as available-for-sale at the time of purchase because it is intended that these investments are available for current operations. Investments with maturities of one year or less from the balance sheet date are classified as short-term investments.
Investments are reported at fair value and are subject to periodic impairment review. Unrealized gains and losses related to changes in the fair value of these securities will be recognized in accumulated other comprehensive loss. The ultimate value realized on these securities is subject to market price volatility until they are sold. Realized gains or losses from short-term investments are recorded in other expense (income), net.
Restricted Cash
The Company maintains certain cash amounts restricted as to withdrawal or use. The restricted cash is primarily collateral for performance bonds issued to certain customers. The collateral is provided in the form of a cash deposit to either
14

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
support the bond directly or to collateralize a letter of credit that supports the performance bonds. Restricted cash was $12.6 million and $13.0 million as of June 30, 2021 and December 31, 2020, respectively.
Credit Risk and Concentration
The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, short-term investments, and accounts receivable. Cash and cash equivalents and short-term investments are maintained primarily at two financial institutions, and deposits exceed federally insured limits. Risks associated with cash and cash equivalents, and short-term investments are mitigated by banking with creditworthy financial institutions. The Company has not experienced any losses on its deposits of cash and cash equivalents or its short-term investments.
Cash equivalents consist of short-term money market funds, corporate debt securities, and debt securities issued by the U.S. Treasury, which are deposited with reputable financial institutions. The Company’s cash management and investment policy limits investment instruments to investment-grade securities with the objective to preserve capital and to maintain liquidity until the funds can be used in business operations.
Accounts receivable are typically unsecured and are generally derived from revenue earned from transit agencies, universities and airports in North America and global commercial vehicle manufacturers in North America, the European Union, Australia and Japan. The Company periodically evaluates the collectability of its accounts receivable and provides an allowance for potential credit losses as necessary. 
Given the large order value for customers and the relatively low number of customers, revenue and accounts receivable have typically been concentrated with a limited number of customers.
RevenueAccounts Receivable
Three Months Ended June 30, Six Months Ended June 30, June 30,December 31,
202120202021202020212020
Number of customers accounted for 10% or more*142412
__________________
*Two customers accounted for 38% and 26% of total revenue for the three months ended June 30, 2020, one customer accounted for 20% of total revenue for the six months ended June 30, 2020, and one customer accounted for 33% of accounts receivable, net as of December 31, 2020. No other individual customer accounted for more than 20% of the Company's revenue for the three and six months ended June 30, 2021 and 2020, or accounts receivable as of June 30, 2021 and December 31, 2020.
Single source suppliers provide the Company with a number of components that are required for manufacturing of its current products. In other instances, although there may be multiple suppliers available, many of the components are purchased from a single source. If these single source suppliers fail to meet the Company’s requirements on a timely basis at competitive prices, the Company could suffer manufacturing delays, a possible loss of revenue, or incur higher cost of sales, any of which could adversely impact the Company’s operating results.
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, short-term investments, accounts payable, and accrued and other current liabilities, approximates fair value due to the short period of time to maturity, receipt, or payment. The carrying amount of the Company’s debt, except for Convertible Notes (as defined below), approximates its fair value as the stated interest rates approximate market rates currently available to the Company.
In August 2020, the Company issued Secured Convertible Promissory Notes (the “Convertible Notes”) that, prior to the Closing, contained embedded features subject to derivative accounting. These embedded features were composed of conversion options that had the economic characteristics of a contingent early redemption feature settled in a variable number of shares of the Company’s stock. These conversion options were bifurcated and accounted for as a derivative liability separately from the host debt instrument. Embedded derivatives were recognized as a derivative liability on the balance sheet. The derivative liability was measured at fair value and subject to remeasurement at each balance sheet date. Upon the consummation of the Merger, the embedded conversion features associated with the Convertible Notes no longer qualify for
15

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
derivative accounting after the conversion price became fixed. The carrying amount of the embedded derivative, the fair value as of the date of the Closing, was reclassified to stockholders’ equity in accordance with Topic 815, Derivatives and Hedging.
The warrants issued in connection with the Convertible Notes were, prior to the Closing, classified as a liability (“legacy Proterra warrant liability”) because they could become exercisable into common stock upon a Qualified Initial Public Offering (“QIPO”) or into convertible preferred stock after 5 years from issuance date in the event that there is no QIPO during such period. Such warrants were measured at fair value, subject to remeasurement at each balance sheet date. Upon exercise of the warrants to common stock within 5 years from issuance date, the carrying amount of the warrant liability would be reclassified to stockholders’ equity. Upon the consummation of the Merger, the stock issuable upon exercise of the warrants is common stock, with no possibility to convert to Legacy Proterra convertible preferred stock. As a result, the carrying amount of the warrant liability was reclassified to stockholders’ equity.
In connection with ArcLight’s initial public offering in September 2020, 21,425,000 warrants to purchase ArcLight ordinary shares were issued, including 13,875,000 public warrants and 7,550,000 private placement warrants. These warrants were classified as liabilities as they did not meet the requirements for equity classification under Topic 815, Derivatives and Hedging. These warrants are continually measured at fair value, subject to remeasurement at each balance sheet date.
Inventories
Inventories are recorded at the lower of cost and net realizable value using the first-in, first-out method. Inventory costs consist primarily of the cost of materials, manufacturing support costs, including labor and factory overhead associated with such production, and shipping costs. The costs of vehicles, charger equipment or prototype products delivered to customers that have not yet met revenue recognition criteria are also included in inventories. The Company assesses the valuation of inventory and periodically records a provision to adjust inventory to its estimated net realizable value, including when the Company determines inventory to be obsolete or in excess of anticipated demand. Once inventory has been written-off or written-down, it creates a new cost basis for the inventory that is not subsequently written-up.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of property, plant, and equipment and right-of-use assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value.
In addition to the recoverability assessment, the Company periodically reviews the remaining estimated useful lives of property, plant, and equipment. If the estimated useful life assumption for any asset is reduced, the remaining net book value is depreciated over the revised estimated useful life.
The Company reviews long-lived assets for impairment at the lowest level for which separate cash flows can be identified. No impairment charge was recognized in the three or six months ended June 30, 2021 and 2020.
Deferred Revenue
Deferred revenue consists of billings or payments received in advance of revenue recognition that are recognized as revenue once the revenue recognition criteria are met. In some instances, progress billings are issued upon meeting certain milestones stated in the contracts. Accordingly, the deferred revenue balance does not represent the total contract value of non-cancelable arrangements. Invoices are typically due within 30 to 40 days.
The changes in deferred revenue consisted of the following (in thousands):
Deferred revenue as of December 31, 2020
$28,221 
Deferred revenue added during the six months ended June 30, 2021
15,510 
16

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognized from beginning balance during the six months ended June 30, 2021
(11,349)
Deferred revenue as of June 30, 2021
$32,382 
The current portion of deferred revenue represents the amount that is expected to be recognized as revenue within one year from the balance sheet date.
Revenue Recognition
The Company derives revenue primarily from the sale of vehicles and charging systems, the installation of charging systems, the sale of battery systems and powertrain components to other vehicle manufacturers, as well as the sale of spare parts and other services provided to customers. Product revenue consists of revenue earned from vehicles and charging systems, battery systems and powertrain components, installation of charging systems, and revenue from leased vehicles, charging systems, and batteries under operating leases. Leasing revenue recognized over time was approximately $0.5 million in each of the three months ended June 30, 2021 and 2020, and $1.1 million and $1.3 million in the six months ended June 30, 2021 and 2020, respectively. Parts and other service revenue includes revenue earned from spare parts, the design and development of battery systems and drive systems for other vehicle manufacturers, and extended warranties.
Goods and services that are promised in the Company’s contracts include vehicles, charging systems, battery systems and powertrain components to other vehicle manufacturers, installation of charging systems, spare parts, and extended warranty. The Company assesses the products and services promised in contracts at contract inception, and identifies performance obligations for each promise to transfer to the customer a product or service that is distinct. If a product or service is separately identifiable from other items in the bundled arrangement and a customer can benefit from the product or service on its own or with other resources that are readily available to the customer, then such product or service is considered distinct. Customer contracts typically have multiple performance obligations. Generally, the Company’s goods and services are considered separate performance obligations. Development services are typically sold on a stand-alone basis and are not bundled with other goods or services.
The transaction price of the contract is allocated to each performance obligation in a manner depicting the amount of consideration to which the Company expects to be entitled in exchange for transferring the goods or services to the customer (the “allocation objective”). If the allocation objective is met at contractual prices, no further allocations are made. Otherwise, the Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis.
To determine the standalone selling price of its promised products or services, the Company conducts an analysis to determine whether its products or services have an observable standalone selling price. In determining the observable standalone selling price, the Company requires that a substantial majority of the standalone selling prices for a product or service fall within a reasonably narrow range. If there is no directly observable standalone selling price for a particular product or service, then the Company estimates a standalone selling price by using the estimated cost plus margin or by reviewing external and internal market factors including, but not limited to, pricing practices including historical discounting, major service groups, and the geographies in which the Company offers products and services.
The Company recognizes revenue when or as it satisfies a performance obligation by transferring control of a product or service to a customer.
Revenue from product sales is recognized when control of the underlying performance obligations is transferred to the customer. Revenue from vehicles and charging systems, and installation of charging systems is typically recognized upon acceptance by the customer. Under certain contract arrangements, the control of the performance obligations related to the charging systems is transferred over time, and the associated revenue is recognized over the installation period using an input measure based on costs incurred to date relative to total estimated costs to completion. Spare parts revenue is recognized upon shipment. Extended warranty revenue is recognized over the life of the extended warranty using the time elapsed method. Development service contracts typically include the delivery of prototype products to customers. The performance obligation associated with the development of prototype products as well as battery systems and powertrain components to other vehicle manufacturers, is satisfied at a point in time, typically upon shipping.
17

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue derived from performance obligations satisfied over time from charging systems and installation was $1.3 million and $0.8 million for the three months ended June 30, 2021 and 2020, respectively, and $5.1 million and $1.2 million for the six months ended June 30, 2021 and 2020, respectively. Extended warranty revenue is not material to date.
Typically, the Company does not have contract assets, as rights to consideration in exchange for goods or services that have transferred to a customer are not conditional on anything other than the passage of time. In certain cases, there is a condition that requires a contract asset to be recognized. As of June 30, 2021 and December 31, 2020, the contract assets balance was $1.1 million and $2.8 million, respectively. The contract assets are expected to be billed within the next twelve months and are recorded in prepaid expenses and other current assets on the balance sheets.
As of June 30, 2021, the amount of remaining performance obligations that have not been recognized as revenue was $303.8 million, of which 80% were expected to be recognized as revenue over the next 12 months and the remainder thereafter. This amount excludes the value of remaining performance obligations for contracts with an original expected length of one year or less.
Lease Arrangements
The Company offers customers leasing alternatives outside of the standard sales contracts for vehicles, charging equipment and batteries used in the vehicles. The leasing arrangements are typically bundled together with the sales contracts. The Company assessed the nature of the bundled arrangements under the revenue accounting standard. For arrangements that contain a lease, the Company determines the classification of the lease in accordance with Topic 842, Leases. A lease arrangement that transfers substantially all of the benefits and risks incident to ownership of the products is classified as a sales-type lease based on the criteria established by the accounting standard; otherwise the lease is classified as an operating lease.
For sales-type leases, product revenue is recognized upon customer acceptance of the underlying leased assets. The current portion of net investment in sales-type leases is recorded in Accounts Receivable, and the non-current portion is recorded in Other Assets on the Company’s balance sheets. The discounted unguaranteed residual value of underlying leased assets is not material to the net investment in lease balance.
For operating leases, the leasing revenue is recognized on a straight-line basis over the lease term, which is commenced upon customer acceptance.
The Company monitors the performance of customers who have leased batteries and are subject to ongoing payments. No allowance was recorded for the receivables under the leasing arrangements.
Product Warranties
The Company provides a limited warranty to customers on vehicles, charging systems, and battery systems. The limited warranty ranges from one to twelve years depending on the components. Separately, the Company also periodically performs field service actions related to product service campaigns. Pursuant to these warranties and field service actions, the Company will repair, replace, or adjust the parts on the products that are defective in factory-supplied materials or workmanship. The Company records a warranty reserve for the products sold at the point of revenue recognition, which includes the best estimate of the projected costs to repair or replace items under the limited warranty and field service actions. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given the relatively short history of sales. Changes to the historical or projected warranty experience may cause material changes to the warranty reserve in the future. The warranty reserve does not include projected warranty costs associated with the vehicles under operating leases, as the costs to repair these warranty claims are expensed as incurred. The portion of the warranty reserve expected to be incurred within the next 12 months is included within accrued liabilities while the remaining balance is included within other long-term liabilities on the balance sheets.
18

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Warranty expense is recorded as a component of cost of goods sold. Accrued warranty activity consisted of the following (in thousands):
Six Months Ended June 30, 2021
Warranty reserve - beginning of period$18,582 
Warranty costs incurred(3,344)
Net changes in liability for pre-existing warranties, including expirations(423)
Provision for warranty6,768 
Warranty reserve - end of period$21,583 
2.    Adoption of New Accounting Standards
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The Company adopted this standard on January 1, 2021, and it had no material impact on the financial statements.
Recent Accounting Pronouncements Not Yet Adopted
ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This standard simplifies the accounting for convertible instruments by removing certain separation models in ASC 470- 20, Debt—Debt with Conversion and Other Options, for convertible instruments. This standard updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, this standard made amendments to the EPS guidance in Topic 260 for convertible instruments, the most significant impact of which is requiring the use of the if-converted method for diluted earnings per share calculation, and no longer allowing the net share settlement method. This standard also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. This standard is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted after December 15, 2020. Adoption of this standard can either be on a modified retrospective or full retrospective basis. The Company is currently evaluating the impact of adoption of this standard.
3.    Reverse Recapitalization
On June 14, 2021, Phoenix Merger Sub merged with Legacy Proterra, with Legacy Proterra surviving as a wholly-owned subsidiary of ArcLight. In connection with the Business Combination, Legacy Proterra changed its name to “Proterra Operating Company, Inc.” and ArcLight changed its name to “Proterra Inc”.
The following transactions occurred upon the Closing:
each share of outstanding Legacy Proterra convertible preferred stock was converted into shares of Proterra common stock in accordance with the applicable conversion ratio immediately prior to the effective time, and each share of Legacy Proterra common stock (including shares issued upon conversion of Legacy Proterra convertible preferred stock and warrants net exercised upon Closing) was converted into shares of common stock after giving effect of the Exchange Ratio of 0.8925 and resulting in the issuance of 123,752,882 shares of common stock;
certain holders of Convertible Notes with an original aggregate principal amounts of $46.5 million elected to convert their outstanding Convertible Notes balances including accrued PIK interest and cash interest at the Closing resulting in the issuance of 7.4 million shares of common stock;
each outstanding Legacy Proterra option was converted into an option to purchase shares of Proterra common stock by multiplying the number of underlying shares by the Exchange Ratio, rounded down to the nearest whole share,
19

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
resulting in such options being exercisable to purchase for an aggregate of 22,532,619 shares of Proterra common stock; the exercise price of each converted option was determined by dividing the per share exercise price of the respective Legacy Proterra options by the Exchange Ratio of 0.8925, rounded up to the nearest whole cent;
each outstanding Legacy Proterra warrant to purchase Legacy Proterra common stock and convertible preferred stock was converted into a warrant to purchase shares of Proterra common stock by multiplying the number of underlying shares by the Exchange Ratio, rounded down to the nearest whole share, resulting in such warrants being exercisable to purchase an aggregate of 3,504,523 shares of Proterra common stock; the exercise price of each converted warrant will be determined by dividing the per share exercise price of the respective Legacy Proterra warrant by the Exchange Ratio of 0.8925, rounded up to the nearest whole cent;
each outstanding Convertible Note that was not optionally converted in connection with the Closing remained outstanding and became convertible into shares of Proterra common stock in accordance with the terms of such Convertible Notes.
15,172 public shares were redeemed by ArcLight shareholders, and an aggregate of $0.2 million was paid from the trust account to these redeeming holders; and each share of ArcLight Class A and Class B ordinary shares was converted into the right to receive one share of Proterra’s common stock resulting in the issuance of 34,671,900 shares of common stock;
pursuant to the subscription agreements between ArcLight and certain investors (the “PIPE Investors”), the PIPE Investors purchased 41.5 million shares of Proterra common stock at a purchase price of $10.00 per share for aggregate gross proceeds of $415.0 million (the “PIPE Financing”);
each ArcLight warrant outstanding immediately prior to the consummation was converted into a warrant exercisable into an equivalent number of shares of Proterra common stock, resulting in such warrants being exercisable for an aggregate of 21,424,994 shares of Proterra common stock; and
the 669,375 shares of Proterra common stock underlying certain Milestone Options (as defined below) fully vested upon the Closing.
Upon the occurrence of any of the following events during the first five years following the Closing of the Merger (“earnout period”), up to an additional 22,809,500 shares of Proterra common stock (the “Earnout Stock”) may be issued to former holders of Legacy Proterra convertible preferred stock, common stock, warrants, vested options and Convertible Notes as of immediately prior to the closing of the Merger, as follows:
a.21.0526% of the Earnout Stock if over any 20 trading days within any 30 trading day period, the volume-weighted average price (“VWAP”) of the Proterra common stock is greater than or equal to $15.00 per share or there occurs any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $15.00 per share (the “First Earnout Shares”);
b.an additional 26.3158% of the Earnout Stock if over any 20 trading days within any 30 trading day period, the VWAP of the Proterra common stock is greater than or equal to $20.00 per share or there occurs any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $20.00 per share;
c.an additional 26.3158% of the Earnout Stock if over any 20 trading days within any 30 trading day period, the VWAP of the Proterra common stock is greater than or equal to $25.00 per share or there occurs any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $25.00 per share;
d.an additional 26.3158% of the Earnout Stock if over any 20 trading days within any 30 trading day period, the VWAP of the Proterra common stock is greater than or equal to $30.00 per share or there occurs any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $30.00 per share;
20

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to a letter agreement (the “Sponsor Letter Agreement”) with ArcLight CTC Holdings, L.P. (the “Sponsor”), 10% of the Proterra common stock received by the Sponsor upon consummation of the Merger in exchange for its outstanding shares of ArcLight Class B ordinary shares, excluding 140,000 shares owned by the ArcLight board of directors, was subject to vesting and forfeiture (the “Sponsor Earnout Stock”). Such shares of Sponsor Earnout Stock would vest if over any 20 trading days within any 30 trading day period during the five-year earnout period, the VWAP of the Proterra common stock was greater than or equal to $15.00 per share or there occurred any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $15.00 per share.
The Earnout Stock and Sponsor Earnout Stock are equity-classified instruments under U.S. GAAP.
The number of shares of Proterra common stock issued immediately following the consummation of the Merger was (in thousands):
Shares
Ordinary shares Class A of ArcLight, outstanding prior to Merger27,750 
Less redemption of ArcLight shares(15)
Sponsor6,257 
Sponsor Earnout Stock680
Common stock of ArcLight34,672
PIPE Investors41,500
Legacy Proterra shares131,176
Total shares of common stock immediately after Merger207,348

Immediately after the Merger, Proterra is authorized to issue 510.0 million shares, with a par value of $0.0001 per share. As of the Closing, the authorized shares consisted of 500.0 million shares of common stock and 10.0 million shares of preferred stock, and there were 207.3 million shares of common stock issued and outstanding, and no shares of preferred stock issued and outstanding. In addition, as of the Closing, there were 24.9 million warrants issued and outstanding, including 13.9 million public warrants, 7.6 million private placement warrants, and 3.5 million Legacy Proterra warrants.
As of the Closing, a total of 82.3 million shares were reserved for future issuance upon the exercise of stock options, warrants and the issuance of Earnout Stock, of which 10.4 million shares were reserved for issuance under Proterra’s 2021 Equity Incentive Plan, 22.5 million shares were reserved under Legacy Proterra’s 2010 Equity Incentive Plan and 1.6 million shares reserved under Proterra’s 2021 Employee Stock Purchase Plan.
The Merger has been accounted for as a reverse merger and a recapitalization under U.S. GAAP with Legacy Proterra being the accounting acquirer, based on evaluation of the following facts and circumstances:
Legacy Proterra’s stockholders have a majority of the voting power of Proterra following the Merger;
Legacy Proterra has initially designated a majority of the board of directors of Proterra;
Legacy Proterra’s management comprise the management of Proterra;
Legacy Proterra comprises the ongoing operations of Proterra;
Legacy Proterra is the larger entity based on historical revenues and business operations; and
Proterra has assumed Legacy Proterra’s name.
Under this method of accounting, ArcLight is treated as the “acquired” company for accounting and financial reporting purposes. Accordingly, for accounting purposes, this merger transaction is treated as the equivalent of Legacy Proterra issuing equity for the net assets of ArcLight, accompanied by a recapitalization. The net assets of ArcLight have been stated at historical cost, with no goodwill or other intangible assets recorded.
21

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company received aggregate cash proceeds of $649.3 million, net of $13.8 million of PIPE Financing fees, $18.5 million of other transaction costs paid at Closing, $9.7 million of ArcLight IPO deferred underwriting fees payable, $1.3 million of other ArcLight’s accrued expenses, and $0.1 million of ArcLight’s related party payable. The unbilled ArcLight expenses incurred prior to the Closing were paid from the cash proceeds received by the Company. The transaction costs including advisory, legal and other professional services directly related to the Merger were recorded in the additional paid-in capital in the balance sheet to offset against proceeds. The deferred transaction costs of approximately $2.9 million paid by the Company prior to the Closing were recorded to the additional paid-in capital and classified as financing activities in the statement of cash flow for the six months ended June 30, 2021.
In July 2021, the conditions for the issuance of the First Earnout Shares and the vesting of the Sponsor Earnout Stock were satisfied, resulting in an aggregate of 4,800,463 shares of common stock being issued and the 679,750 shares of Sponsor Earnout Stock fully vesting. See Note 14, Subsequent Events.
4.    Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value. Fair value is determined based on the exit price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities; 
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and 
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. 
Financial assets measured at fair value on a recurring basis using the above input categories were as follows (in thousands):
Pricing CategoryFair Value at
June 30, 2021December 31, 2020
Assets:
Cash equivalents and marketable securities:
Money market fundsLevel 1$627,735 $744 
U.S. Treasury securitiesLevel 1 64,997 
Short-term investments:
U.S. Treasury securitiesLevel 1126,693 68,990 
Total$754,428 $134,731 
Liabilities:
Other non-current liabilities
Derivative liabilityLevel 3$ $70,870 
Legacy Proterra warrant liabilityLevel 3 39,670 
Public warrant liabilityLevel 177,840  
Private placement warrant liabilityLevel 351,490  
Total$129,330 $110,540 
As of June 30, 2021 and December 31, 2020, short-term investments were primarily comprised of U.S. Treasury securities. The unrealized gain/losses related to fixed income debt securities were immaterial and primarily due to changes in interest rates, which are temporary in nature.
22

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2021 and December 31, 2020, the contractual maturities of the short-term investments were less than one year.
In August 2020, the Company issued Convertible Notes that, prior to the Closing, contained embedded features subject to derivative accounting. Refer to Note 6, Debt, for additional information on the Convertible Notes.
The embedded derivatives were recognized as a derivative liability on the balance sheet, and were measured at fair value, subject to remeasurement at each balance sheet date. The fair value of derivative liability was measured as the difference between the estimated value of the Convertible Notes with and without such conversion features utilizing a Monte Carlo simulation pricing model.
The warrants issued in connection with the Convertible Notes were, prior to the Closing, classified as a liability because they could become exercisable into common stock upon a QIPO or into convertible preferred stock after five years from issuance date in the event that there was no QIPO during such period. Such warrants were measured at fair value, subject to remeasurement at each balance sheet date. The fair value of the warrant liability was measured using a Monte Carlo Simulation pricing model.
The fair value of the Convertible Notes was $418.7 million as of June 30, 2021. The carrying value of the Convertible Notes of $90.9 million, net of $68.8 million unamortized debt discount and issuance costs, as of June 30, 2021, was recorded in Debt, non-current on the balance sheets.
The public warrants and private placement warrants issued in connection with ArcLight’s initial public offering were classified as a liability prior to the Closing. These warrants are continually classified as a liability and measured at fair value, subject to remeasurement at each balance sheet date. The fair value of the warrant liability of private placement warrants was measured using a Binomial Lattice model.
The valuation of derivative and Legacy Proterra warrant liabilities and the Convertible Notes, and the private placement warrants are based on certain significant inputs not observable in the market, and thus represents a level 3 measure. The key inputs to the valuation model include fair value of equity, equity volatility, expected term until a liquidity event to exit, expected term until exercise, and risk-free interest rate.
A summary of the changes of the derivative liability and warrant liabilities is as follows (in thousands):
Derivative liabilityLegacy Proterra warrant liabilityPrivate placement warrant liabilityPublic warrant liability
Fair value as of December 31, 2020
$70,870 $39,670 $ $ 
Warrant liability acquired as part of the reverse recapitalization  57,610 84,640 
Change in fair value111,684 47,346 (6,120)(6,800)
Reclassification of liability upon exercise of warrants (17,696)  
Reclassification of liability upon the reverse recapitalization(182,554)(69,320)  
Fair value as of June 30, 2021
$ $ $51,490 $77,840 
The change in fair value of derivative and warrant liabilities is recorded in the statements of operations.
23

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.    Balance Sheet Components
Cash and cash equivalents consisted of the following (in thousands):
June 30, 2021December 31, 2020
Cash
$7,101 $44,978 
Cash equivalents
627,735 65,741 
Total cash and cash equivalents
$634,836 $110,719 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheets to the total of such amounts shown on the statements of cash flows.
June 30, 2021December 31, 2020
Cash and cash equivalents
$634,836 $110,719 
Restricted cash, current portion
10,890 8,397 
Restricted cash, net of current portion
1,675 4,581 
Total restricted cash
12,565 12,978 
Total cash and cash equivalents, and restricted cash
$647,401 $123,697 
Inventories consisted of the following (in thousands):
June 30, 2021December 31, 2020
Raw materials
$37,769 $31,148 
Work in progress
21,543 8,042 
Finished goods
29,888 47,756 
Service parts
6,177 5,384 
Total inventories
$95,377 $92,330 
The Company recorded a write-down of excess or obsolete inventories to cost of goods sold of $0.2 million and $0.7 million for the three and six months ended June 30, 2021, and $1.2 million and $1.8 million for the three and six months ended June 30, 2020, respectively.
24

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property, plant, and equipment, net, consisted of the following (in thousands):
June 30, 2021December 31, 2020
Computer hardware
$4,861 $4,708 
Computer software
9,267 8,849 
Internally used vehicles and charging systems
19,249 19,136 
Leased vehicles and batteries
7,215 7,081 
Leasehold improvements
10,334 10,234 
Machinery and equipment
25,204 26,026 
Office furniture and equipment
1,987 1,854 
Tooling
22,947 21,727 
Finance lease right-of-use assets
179 179 
Construction in progress
3,502 1,830 
104,745 101,624 
Less: Accumulated depreciation and amortization
(55,356)(48,037)
Total
$49,389 $53,587 
As of June 30, 2021 and December 31, 2020, construction in progress was comprised of various assets that are not available for their intended use as of the balance sheet date.
As of June 30, 2021, the Company billed approximately $1.4 million of reimbursable equipment costs under the 2019 grant agreement with the California Energy Commission. The receivables are recorded in prepaid expenses and other current assets in the balance sheets, and offset the costs of machinery and equipment.
For the three and six months ended June 30, 2021, depreciation and amortization expense was $4.0 million and $7.7 million, respectively. For the three and six months ended June 30, 2020, depreciation and amortization expense was $4.1 million and $7.8 million, respectively.
Accrued liabilities consisted of the following (in thousands):
June 30, 2021December 31, 2020
Accrued payroll and related expenses
$6,798 $6,695 
Accrued sales and use tax
1,786 975 
Warranty reserve
8,173 6,121 
Financing obligation
2,590 3,056 
Accrued audit and accounting related expenses
1,073 428 
Accrued charger installation costs
1,035