424B3 1 a2023q210-q.htm 424B3 Document

Filed pursuant to Rule 424(b)(3)
Registration No. 333-264346
PROSPECTUS SUPPLEMENT NO. 3
(to Prospectus dated June 9, 2023)
Proterra Inc
125,389,111 Shares of Common Stock
26,317,092 Shares of Common Stock Underlying Warrants and Convertible Notes
This prospectus supplement supplements the prospectus dated June 9, 2023, which forms a part of our registration statement on Form S-1 (File No. 333-264346) as supplemented by Prospectus Supplement No. 1, dated June 28, 2023, and by Prospectus Supplement No. 2, dated August 8, 2023 (the “Prospectus”). This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in our quarterly report on Form 10-Q for the quarter ended June 30, 2023, filed with the Securities and Exchange Commission on August 9, 2023 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.
The Prospectus and this prospectus supplement relate to the offer and sale from time to time by the selling securityholders named in the Prospectus (the “Selling Securityholders”) of up to 125,389,111 shares of common stock, par value $0.0001 per share (“common stock”), consisting of (i) up to 16,334,868 shares of common stock issued in a private placement of 41,500,000 shares of common stock pursuant to subscription agreements entered into on January 11, 2021; (ii) up to 1,904,692 shares of common stock held by ArcLight CTC Holdings, L.P.; and (iii) up to 107,149,551 shares of common stock issued or issuable to certain former stockholders and other security holders of Legacy Proterra (the “Legacy Proterra Holders”) in connection with or as a result of the consummation of the Business Combination (as defined in the Prospectus), consisting of (a) up to 56,766,043 shares of common stock; (b) up to 26,316,200 shares of common stock (the “Note Shares”) issuable upon the conversion of outstanding convertible promissory notes (the “Convertible Notes”); (c) up to 892 shares of common stock issuable upon the exercise of certain warrants (the “Legacy Proterra warrants”); (d) 11,171,287 shares of common stock issued or issuable upon the exercise of certain equity awards; and (e) up to 12,895,129 shares of common stock (“Earnout Shares”), comprising both Earnout Shares that were issued to certain Legacy Proterra Holders in July 2021 and Earnout Shares that certain Legacy Proterra Holders have the contingent right to receive upon the achievement of certain stock price-based vesting conditions.
In addition, the Prospectus and this prospectus supplement relate to the offer and sale of (i) up to 892 shares of common stock issuable by us upon exercise of the Legacy Proterra warrants that were previously registered, and (ii) up to 26,316,200 Note Shares issuable by us upon conversion of the Convertible Notes, certain of which were previously registered. The number of shares issuable upon conversion of Convertible Notes is calculated assuming that the Convertible Notes convert pursuant to their mandatory conversion terms on December 31, 2022 pursuant to the terms of the Convertible Notes in effect as of that date and does not reflect the terms of the amended Convertible Notes Facility (as defined in the Prospectus). The actual number of shares issued upon conversion will depend on the actual date of conversion and will be pursuant to the terms of the amended Convertible Notes Facility (as defined in the Prospectus).
Our common stock is listed on the Nasdaq Global Select Market (the “Nasdaq”) under the symbol “PTRA.” On August 8, 2023, the last reported sale price of our common stock was $0.17 per share.
This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.
Investing in our common stock involves risks. See the section entitled “Risk Factors” beginning on page 7 of the Prospectus to read about factors you should consider before buying our common stock.
The registration statement to which the Prospectus and this prospectus supplement relates registers the resale of a substantial number of shares of our common stock by the Selling Securityholders. Sales in the public



market of a large number of shares, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August 9, 2023




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, 2023

OR

TRANSITION 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
90-2099565
(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

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 filerxAccelerated filer
o
Non-accelerated filer  
o
Smaller reporting company
o
Emerging growth company
o
                
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. o

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 227.8 million shares of common stock as of August 4, 2023.





TABLE OF CONTENTS
4


Explanatory Note – Certain Defined Terms
Unless otherwise stated in this Quarterly Report on Form 10-Q (the “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;
“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;
“Convertible Notes” means the Secured Convertible Promissory Notes that Legacy Proterra issued in August 2020, as amended and restated on March 31, 2023;
“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 (now known as Proterra Operating Company, 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;
“Note Purchase Agreement” means the Note Purchase Agreement, dated as of August 4, 2020, by and among Legacy Proterra, the investors from time to time party thereto, the guarantors from time to time party thereto and CSI GP I LLC, as collateral agent, as amended on August 31, 2020 and further amended on March 31, 2023;
“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;
“Proterra” means ArcLight upon and after Closing;
“Proterra OpCo” means Proterra Operating Company, Inc. (formerly known as Proterra Inc prior to the consummation of the Business Combination);
5


“Senior Credit Facility” means the Loan, Guaranty and Security Agreement dated as of May 8, 2019, by and among Legacy Proterra, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, as amended on August 4, 2020, June 16, 2021, and April 3, 2023; 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.
6


Forward-Looking Statements
This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This Quarterly Report contains forward-looking statements regarding, among other things, our plans, strategies and prospects, both business and financial. These statements are based on the beliefs and assumptions of our management. We also may provide forward-looking statements in oral statements or other written materials released to the public. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes”, “estimates”, “expects”, “projects”, “forecasts”, “objectives”, “goals”, “aims”, “continue”, “predict”, “would”, “could’, “may”, “will”, “should”, “seeks”, “plans”, “scheduled”, “anticipates” or “intends” or similar expressions. Forward-looking statements contained in this Quarterly Report may include, for example, statements about:
the outcome of the Company’s Chapter 11 Cases in the Bankruptcy Court;
the approval of the use of cash collateral by the Bankruptcy Court and the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our Chapter 11 Cases, operating expenses and capital expenditure requirements;
the diversion of management’s attention and consumption of resources as a result of the Chapter 11 Cases;
our financial and business performance, including business metrics;
our ability to continue as a going concern;
availability of additional capital to support business growth and our ability to maintain adequate operational and financial resources and generate sufficient cash flows;
changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;
regulations that we are subject to, the impact of unfavorable changes to such regulations, or our ability to comply with such regulations;
expectations regarding corporate, state, federal and international mandates/commitments;
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 business, including 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 and our ability to meet demand for our products;
our ability to compete successfully against current and future competitors in light of intense and increasing competition in the commercial vehicle electrification market, including battery systems for transit buses and other commercial vehicle uses;
our ability to improve operational efficiency, streamline supply chain and distribution logistics, reduce organizational complexity and reduce facility costs;;
7


the availability of government economic incentives and government funding for commercial vehicle electrification, including public transit upon which our transit business is significantly dependent, and other commercial uses for our battery systems;
willingness of corporate and other public transportation providers and other commercial vehicle end users to adopt and fund the purchase of electric vehicles for mass transit and other commercial uses;
availability of a limited number of suppliers for our products and services and their desire and/or ability to satisfy our supply demands, and our dependence on our business suppliers, particularly as we build out new facilities;
material losses and costs from product warranty claims, recalls, or remediation of electric transit buses or our battery systems for real or perceived deficiencies or from customer satisfaction campaigns;
increases in costs, disruption of supply, or shortage of materials, particularly lithium-ion cells and wiring harnesses, and drivetrain components;
our dependence on a small number of customers that fluctuate from year to year, and ability to add new customers or expand sales to our existing customers;
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 strategic relationships;
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;
ability to protect our intellectual property and defend intellectual property rights claims made by third parties;
developments and projections relating to our competitors and industry;
the potential for our business development efforts to maximize the potential value of our portfolio and our related plans and strategy;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our ability to develop and maintain effective internal controls and procedures and remediate the material weaknesses we have identified in our internal controls;
our expectations with respect to tax treatment, including with respect to tax incentives and credits;
8


cyber-attacks and security vulnerabilities; and
the continuing impacts of the macroeconomic conditions, such as rising inflation and interest rates, uncertain credit and global financial markets, including recent and potential bank failures, and supply chain disruptions, and geopolitical events, such as the conflict between Russia and Ukraine and related sanctions, on the foregoing.
These forward-looking statements are based on information available as of the date of this Quarterly Report, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Important factors could cause actual results to differ materially from those indicated or implied by forward-looking statements such as those contained in documents we have filed with the Securities and Exchange Commission (the “SEC”). Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or similar transactions.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. For a discussion of the risks involved in our business and investing in our common stock, see Part II, Item 1A. titled “Risk Factors.”
Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary in material respects from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.
9


Summary of Risk Factors
The below summary of risk factors provides an overview of many of the risks we are exposed to in the normal course of our business activities. As a result, the following summary of risks does not contain all of the information that may be important to you, and you should read the summary of risks together with the more detailed discussion of risks set forth in Part II, Item 1A under the heading “Risk Factors,” and elsewhere in this Quarterly Report. Additional risks, beyond those summarized below or discussed elsewhere in this Quarterly Report, may apply to our activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. Consistent with the foregoing, we are exposed to a variety of risks, including risks associated with the following:
We are subject to the risks and uncertainties associated with Chapter 11 proceedings, including the approval by the Bankruptcy Court of our use of cash collateral, and operating under Bankruptcy Court protection for a long period of time may harm our business.
We may not be able to obtain confirmation of a Chapter 11 plan of reorganization or complete any Bankruptcy Court-approved sales of our Company or assets, or we may not be able to realize adequate consideration for such sales.
We may be subject to claims that will not be discharged in the Chapter 11 proceedings, which could have a material adverse effect on our financial conditions and results of operations.
We may experience increased levels of employee attrition as a result of the Chapter 11 proceedings.
Our post-bankruptcy capital structure is yet to be determined, and any changes to our capital structure may have a material adverse effect on existing debt and security holders, including holders of our common stock.
The Chapter 11 proceedings may cause our common stock to decrease in value materially or may render our common stock worthless. Trading in shares of our common stock during the pendency of the Chapter 11 proceedings is highly speculative and an investor could lose all or part of your investment.
There is substantial doubt about our ability to continue as a going concern for a period of 12 months from the date of this Quarterly Report on Form 10-Q, and our independent registered public accounting firm's audit report included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern, indicating the possibility we may not be able to operate in the future.
We will require additional capital to support our business activities and business growth, which may be dilutive to our stockholders, contain restrictions or covenants which may restrict and impact our business and financing activities, and such capital might not be available on a timely basis, or on terms acceptable to us, if at all.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our operating results could be adversely affected.
We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future.
We have a history of net losses, have experienced rapid growth and anticipate increasing our operating expenses in the future, and may not achieve or sustain positive gross margin or profitability in the future.
Our operating results have and may fluctuate from quarter to quarter, which makes our future results difficult to predict.
10


Because many of the markets in which we compete are new and rapidly evolving, including consolidation of industry players, it is difficult to forecast long-term end-customer adoption rates and demand for our products, and our ability to meet demand for our products.
Our business is significantly dependent on government funding and economic incentives for public transit and commercial electric vehicles, and the unavailability, reduction, or elimination of government economic incentives would have an adverse effect on our business, prospects, financial condition, and operating results.
Our business is dependent on the continued adoption of electrification in the commercial vehicle market and the continued development of infrastructure to support increased electrification by governments, utilities and end users.
We face intense and increasing competition in the transit bus market and may not be able to compete successfully against current and future competitors, which could adversely affect our business, revenue growth, and market share.
We have been and may continue to be impacted by macroeconomic conditions such as the rising inflation and interest rates, uncertain credit and global financial markets, including the recent and potential bank failures, and supply chain disruption and geopolitical events, such as the conflict between Russia and Ukraine and related sanctions.
The growth of our business is dependent upon the willingness of corporate and other public transportation providers to adopt and fund the purchase of electric vehicles.
Our dependence on a limited number of suppliers for certain product inputs introduces significant risk that could have adverse effects on our financial condition and operating results.
We have a long sales, production, and technology development cycle for new public transit customers, which may create fluctuations in whether and when revenue is recognized and may have an adverse effect on our business.
We could incur 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.
Our revenue has in the past depended, and will likely continue to depend, 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 could have an adverse effect on our operating results for a particular period.
Our business is subject to substantial regulations and compliance programs, which are evolving, and unfavorable changes or failure by us to comply with these regulations and compliance programs could have an adverse effect on our business.
Our business could be adversely affected from an accident or safety incident involving our battery systems, electrification and charging solutions, fleet and energy management systems, electric transit buses or defaults in the materials or workmanship of our composite bus bodies or other components.
11


Part I. Financial Information
Item 1. Financial Statements
PROTERRA INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, 2023December 31, 2022
(Unaudited)*
Assets:
Cash and cash equivalents$64,201 $73,695 
Accounts receivable, net81,907 130,337 
Short-term investments156,615 224,359 
Inventory292,247 169,567 
Prepaid expenses and other current assets34,202 50,893 
Deferred cost of goods sold3,332 4,304 
Restricted cash, current12,565 12,565 
Total current assets645,069 665,720 
Property, plant, and equipment, net110,706 107,552 
Operating lease right-of-use assets
16,986 20,274 
Long-term inventory prepayment10,000 10,000 
Other assets39,420 36,913 
Total assets$822,181 $840,459 
Liabilities and Stockholders’ Equity:
Accounts payable$139,315 $57,822 
Accrued liabilities23,573 33,551 
Deferred revenue, current34,930 30,017 
Operating lease liabilities, current5,032 6,876 
Debt, current180,629 122,692 
Derivative liability81,300 — 
Total current liabilities464,779 250,958 
Deferred revenue, non-current52,945 37,381 
Operating lease liabilities, non-current16,430 18,098 
Other long-term liabilities22,532 17,164 
Total liabilities556,686 323,601 
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.0001 par value; 1,000,000 shares authorized and 227,770 shares issued and outstanding as of June 30, 2023 (unaudited); 500,000 shares authorized and 226,265 shares issued and outstanding as of December 31, 2022
22 22 
Preferred stock, $0.0001 par value; 10,000 shares authorized and zero shares issued and outstanding as of June 30, 2023 (unaudited); 10,000 shares authorized, zero shares issued and outstanding as of December 31, 2022
— — 
Additional paid-in capital
1,636,650 1,613,556 
Accumulated deficit
(1,371,146)(1,096,175)
Accumulated other comprehensive loss(31)(545)
Total stockholders’ equity
265,495 516,858 
Total liabilities and stockholders’ equity
$822,181 $840,459 
*: Derived from audited Consolidated Financial Statements.
See accompanying notes to unaudited condensed consolidated financial statements.
12


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2023202220232022
Product revenue$77,103 $70,256 $147,099 $124,427 
Parts and other service revenue8,611 4,308 18,144 8,718 
Total revenue85,714 74,564 165,243 133,145 
Product cost of goods sold92,390 69,109 171,441 126,335 
Parts and other service cost of goods sold5,711 4,900 12,747 9,258 
Total cost of goods sold98,101 74,009 184,188 135,593 
Gross profit (loss)(12,387)555 (18,945)(2,448)
Research and development14,922 14,904 33,446 26,706 
Selling, general and administrative35,562 31,705 71,448 60,092 
Total operating expenses50,484 46,609 104,894 86,798 
Loss from operations(62,871)(46,054)(123,839)(89,246)
Interest expense, net3,938 6,951 11,192 13,830 
(Gain) loss on debt extinguishment— (10,201)177,939 (10,201)
Gain on valuation of derivative liability(33,578)— (33,578)— 
Other expense (income), net(2,237)(983)(4,421)(976)
Loss before income taxes(30,994)(41,821)(274,971)(91,899)
Provision for income taxes— — — — 
Net loss$(30,994)$(41,821)$(274,971)$(91,899)
Net loss per share of common stock:
Basic$(0.14)$(0.19)$(1.21)$(0.41)
Diluted$(0.14)$(0.38)$(1.21)$(0.56)
Weighted average shares used in per share computation:
Basic227,282 223,745 226,848 223,015 
Diluted227,282 248,876 226,848 247,870 
See accompanying notes to unaudited condensed consolidated financial statements.

13


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2023202220232022
Net loss$(30,994)$(41,821)$(274,971)$(91,899)
Other comprehensive income (loss), net of taxes:
Available-for-sales securities:
Unrealized gain (loss) on available-for-sale securities(94)(465)514 (2,106)
Other comprehensive income (loss), net of taxes(94)(465)514 (2,106)
Total comprehensive loss, net of taxes$(31,088)$(42,286)$(274,457)$(94,005)
See accompanying notes to unaudited condensed consolidated financial statements.
14


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands)
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal
Six Months Ended June 30, 2023SharesAmount
Balance, December 31, 2022226,265 $22 $1,613,556 $(1,096,175)$(545)$516,858 
Issuance of stock upon exercise of options and RSU release588 — 113 — — 113 
Stock-based compensation— — 4,314 — — 4,314 
Debt extinguishment fair value adjustment— — (7,200)— — (7,200)
Net loss— — — (243,977)— (243,977)
Other comprehensive income, net of taxes— — — — 608 608 
Balance, March 31, 2023226,853 22 1,610,783 (1,340,152)63 270,716 
Issuance of stock upon RSU release331 — — — — — 
Stock issuance for employee stock purchase plan586 — 662 — — 662 
Reclassification of liability upon charter amendment— — 20,800 — — 20,800 
Stock-based compensation— — 4,405 — — 4,405 
Net loss— — — (30,994)— (30,994)
Other comprehensive loss, net of taxes— — — — (94)(94)
Balance, June 30, 2023227,770 $22 $1,636,650 $(1,371,146)$(31)$265,495 
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal
Six Months Ended June 30, 2022SharesAmount
Balance, December 31, 2021221,960 $22 $1,578,943 $(858,225)$(588)$720,152 
Issuance of stock upon exercise of options and RSU release743 — 1,833 — — 1,833 
Stock issuance for employee stock purchase plan— — — — — — 
Stock-based compensation— — 4,642 — — 4,642 
Net loss— — — (50,078)— (50,078)
Other comprehensive loss, net of taxes— — — — (1,641)(1,641)
Balance, March 31, 2022222,703 22 1,585,418 (908,303)(2,229)674,908 
Issuance of stock upon exercise of options and RSU release1,951 — 6,011 — — 6,011 
Stock issuance for employee stock purchase plan325 — 1,502 — — 1,502 
Stock-based compensation— — 6,315 — — 6,315 
Net loss— — — (41,821)— (41,821)
Other comprehensive loss, net of taxes— — — — (465)(465)
Balance, June 30, 2022224,979 $22 $1,599,246 $(950,124)$(2,694)$646,450 
See accompanying notes to unaudited condensed consolidated financial statements.
15


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
20232022
Cash flows from operating activities:
Net loss$(274,971)$(91,899)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization9,594 6,672 
Stock-based compensation8,719 10,957 
Amortization of debt discount and issuance costs3,752 6,833 
Accretion of debt PIK interest4,912 3,665 
(Gain) loss on debt extinguishment177,939 (10,007)
Gain on valuation of derivative liability(33,578)— 
Others(2,810)53 
Changes in operating assets and liabilities:
Accounts receivable48,431 (1,026)
Inventory(122,680)(33,979)
Prepaid expenses and other current assets16,690 (1,792)
Deferred cost of goods sold973 (2,139)
Operating lease right-of-use assets and liabilities(224)372 
Other assets(2,547)(11,830)
Accounts payable and accrued liabilities71,419 3,259 
Deferred revenue, current and non-current20,476 3,966 
Other non-current liabilities4,963 197 
Net cash used in operating activities(68,942)(116,698)
Cash flows from investing activities:
Purchase of investments(154,598)(297,672)
Proceeds from maturities of investments226,000 316,000 
Purchase of property and equipment(9,375)(27,577)
Net cash provided by (used in) investing activities62,027 (9,249)
Cash flows from financing activities:
Repayment of government grants— (700)
Proceeds from exercise of stock options113 7,844 
Proceeds from employee stock purchase plan662 1,502 
Other financing activities(3,354)(16)
Net cash provided by (used in) financing activities(2,579)8,630 
Net decrease in cash and cash equivalents, and restricted cash(9,494)(117,317)
Cash and cash equivalents, and restricted cash at the beginning of period86,260 182,604 
Cash and cash equivalents, and restricted cash at the end of period$76,766 $65,287 
Supplemental disclosures of cash flow information:
Cash paid for interest$4,352 $4,155 
Cash paid for income taxes— — 
Non-cash investing and financing activity:
Accrued capital expenditures in accounts payable and accrued liabilities$7,118 $4,545 
Non-cash transfer of assets to inventory— 515 
Reclassification of derivative liability upon charter amendment $20,800 $— 
See accompanying notes to unaudited condensed consolidated financial statements.
16

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.    Summary of Significant Accounting Policies
Organization and Description of Business
Proterra Inc (“Proterra” or the “Company") is a leading developer and producer of zero-emission electric vehicle and EV technology solutions for commercial application. 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 solutions for its customers. Proterra is headquartered in Burlingame, California, and has manufacturing and product development facilities in Burlingame and City of Industry, California, and Greenville and Greer, South Carolina. The Company has consolidated bus production in Greenville, South Carolina and is in the process of consolidating battery production in Greer, South Carolina.
Proterra Operating Company, Inc. (“Proterra OpCo” and formerly known as Proterra Inc prior to the consummation of the Business Combination (“Legacy Proterra”)) was originally formed in June 2004 as a Colorado limited liability company and converted to a Delaware corporation in February 2010. On June 14, 2021, Legacy Proterra consummated the transactions contemplated by the Merger Agreement, by and among ArcLight Clean Transition Corp. (“ArcLight”), (and, after the Domestication, Proterra), Phoenix Merger Sub, and Legacy Proterra, whereby Phoenix Merger Sub merged with and into Legacy Proterra, and Legacy Proterra being the surviving corporation and a wholly owned subsidiary of Proterra. Legacy Proterra changed its name to “Proterra Operating Company, Inc.” and continues as a Delaware Corporation and wholly-owned subsidiary of Proterra. Unless otherwise specified or unless the context otherwise requires, references in these notes to the “Company,” “we,” “us,” or “our” refer to Legacy Proterra prior to the Business Combination and to Proterra following the Business Combination.
Voluntary Filing under Chapter 11
On August 7, 2023 (the “Petition Date”), Proterra Inc and its subsidiary, Proterra Operating Company, Inc. (collectively, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (such court, the “Bankruptcy Court” and such cases, the “Chapter 11 Cases”). The Cases are, pending an order authorizing joint administration by the Bankruptcy Court, currently administered under the captions In re Proterra Inc, Case No. 23-11120 (BLS) (Bankr. D. Del. 2023) and In re Proterra Operating Company, Inc., Case No. 23-11121 (BLS) (Bankr. D. Del. 2023), for the Company and Proterra Operating Company, Inc. respectively. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. To ensure their ability to continue operating in the ordinary course of business, the Debtors are seeking from the Bankruptcy Court a variety of “first-day” relief”, including, among other things, authority to use cash collateral, pay employee wages and benefits, pay vendors and suppliers in the ordinary course for all goods and services provided after the Petition Date and continue customer programs. As of August 8, 2023, the motions filed by the Debtors seeking this “first-day” relief are pending approval by the Bankruptcy Court on an interim or final basis, as applicable. See additional considerations within Note 11, Subsequent Events.
Liquidity and Going Concern
Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about the Company’s ability to meet our future obligations as they become due within one year of the financial statements being issued in this Quarterly Report on Form 10-Q. These financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and this basis assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. These financial statements do not include any adjustments that may result from the outcome of this uncertainty.
17

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company has incurred net losses and negative cash flows from operations since inception. As of June 30, 2023, the Company has an accumulated deficit of $1.4 billion, and cash and cash equivalents and short-term investments of $220.8 million. The Company has funded operations primarily through a combination of equity and debt financing. There was no outstanding balance under the Senior Credit Facility as of June 30, 2023. There was an aggregate of $20.1 million of letters of credit outstanding under the Senior Credit Facility as of June 30, 2023. As of June 30, 2023, the aggregate principal amount of Convertible Notes outstanding was $175.9 million inclusive of PIK interest of $22.4 million.
The Company filed the Chapter 11 Cases on August 7, 2023 which constituted an event of default that accelerated the Company’s obligations under the following debt instruments:
The Senior Credit Facility, which, as of June 30, 2023, has no outstanding balance and $20.1 million of letters of credit outstanding; and
The $175.9 million aggregate principal amount of Convertible Notes outstanding as of June 30, 2023.
The debt instruments set forth above provide that as a result of the Bankruptcy Petitions, the principal and interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the debt instruments set forth above are automatically stayed as a result of the Bankruptcy Petitions, and the creditors’ rights of enforcement in respect of the debt instruments set forth above are subject to the applicable provisions of the Bankruptcy Code.
In addition, beginning on the Petition Date, the Company’s ability to continue as a going concern is contingent upon, among other things, its ability to, subject to the Bankruptcy Court’s approval, implement a Chapter 11 plan, emerge from the Chapter 11 proceedings and generate sufficient liquidity to meet its contractual obligations and operating needs. As a result of the risks and uncertainties related to, among other things, (i) the Company’s ability to obtain requisite support for a Chapter 11 plan from various stakeholders, and (ii) the disruptive effects of the Chapter 11 proceedings on our business making it potentially more difficult to maintain business, financing and operational relationships. The outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the company’s creditors. There can be no assurance that the Company will be successful in conducting a sale, executing a transaction, or able to consummate a Chapter 11 plan with respect to the Chapter 11 Cases. As a result of risks and uncertainties related to events of default under our debt obligations, the delisting of our common stock and the effects of disruption from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, together with the Company’s recurring losses from operations and accumulated deficit, substantial doubt exists regarding our ability to continue as a going concern for the next 12 months. See Note 11, Subsequent Events for additional details on the Chapter 11 Cases.
The Company’s condensed consolidated financial statements as of June 30, 2023 do not include any adjustments related to the filing of the Chapter 11 Cases.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
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, 2022 and the related notes incorporated by reference in the Company’s Annual Report (the “Annual Report”) on Form 10-K, filed with SEC on March 17, 2023 and amended on May 1, 2023, which provides a more complete discussion of the Company’s accounting policies and certain other information. The information as of December 31, 2022 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 presentation of the Company’s financial position as of June 30, 2023
18

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
and the results of operations and cash flows for the six months ended June 30, 2023 and 2022. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
Use of Estimates
In preparing the condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC, the Company must make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ materially from these estimates.
Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies described in the Annual Report, except for the accounting policies related to the Convertible Notes and derivative liability described in Note 4, Debt, adopted during the three months ended March 31, 2023, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.
Segments
The Company operates in the United States and has sales to the European Union, Canada, United Kingdom, Australia, Japan and Türkiye. Revenue disaggregated by geography, based on the addresses of the Company’s customers, consists of the following (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2023202220232022
United States$67,682 $61,673 $133,105 $113,640 
Rest of World18,032 12,891 32,138 19,505 
$85,714 $74,564 $165,243 $133,145 
The Company’s chief operating decision maker is its Chief Executive Officer (CEO) who reviews financial information presented on a consolidated basis for purposes of making decision on allocating resources and assessing financial performance. Accordingly, the Company has determined that it has a single reportable segment.
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, 2023 and December 31, 2022.
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 one financial institution as of June 30, 2023, 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 and short-term investments 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 securities with short-term credit ratings at the timing of purchase of P-2 and A-2 or better from Moody’s Investors Service
19

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
and Standard & Poor’s Financial Services, LLC, respectively, 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, the United Kingdom, Australia, Japan and Türkiye. 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,
202320222023202220232022
Number of customers accounted for 10% or more222222
Total % for customers accounted for 10% or more43%25%32%26%45%48%
Single source suppliers provide the Company with a number of components that are required for manufacturing of its current products. For example, we sole source our composite bus bodies from TPI Composites Inc. In other instances, although there may be multiple suppliers available, many of the components are purchased from one single source. If these single source suppliers fail to meet the Company’s requirements on a timely basis at competitive prices or are unable to provide components for any reason, 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.
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 and six months ended June 30, 2023 and 2022, respectively.
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, 2022
$67,398 
Revenue recognized from beginning balance during the six months ended June 30, 2023
(14,843)
20

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Deferred revenue added during the six months ended June 30, 2023
35,320 
Deferred revenue as of June 30, 2023
$87,875 
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. Parts and other service revenue includes revenue earned from spare parts, the design and development of battery systems and powertrain systems for other vehicle manufacturers, and extended warranties.
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 sales of vehicles is typically recognized upon delivery when the Company can objectively demonstrate that the criteria specified in the contractual acceptance provisions are achieved prior to delivery. In cases, where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior delivery, revenue is recognized upon acceptance by the customer. Revenue from sales of charging systems is recognized at a point in time, generally upon delivery or commissioning when control of the underlying performance obligations are transferred to 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.
Revenue derived from performance obligations satisfied over time from charging systems and installation was $1.6 million and zero for the three months ended June 30, 2023 and 2022, respectively, and $2.8 million and $2.1 million for the six months ended June 30, 2023 and 2022, respectively. Leasing revenue and extended warranty revenue recognized over time was immaterial for the three and six months ended June 30, 2023 and 2022, respectively.
As of June 30, 2023 and December 31, 2022, the contract assets balance was $13.4 million and $26.1 million, respectively, and are recorded in the prepaid expenses and other current assets on the consolidated balance sheets. The contract assets are expected to be billed within the next twelve months.
As of June 30, 2023, the amount of remaining performance obligations that have not been recognized as revenue was $513.8 million, of which 84% 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.
21

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our business has the following commercial offerings each addressing a critical component of commercial vehicle electrification.
Proterra Transit designs, develops, manufactures, and sells electric transit buses as an original equipment manufacturer (“OEM”) for North American public transit agencies, airports, universities, and other commercial transit fleets.
Proterra Powered & Energy includes Proterra Powered, which designs, develops, manufactures, sells, and integrates proprietary battery systems and electrification solutions into vehicles for global commercial vehicle OEMs, and Proterra Energy, which offers turnkey fleet-scale, high-power charging solutions and software services, ranging from fleet and energy management software-as-a-service, to fleet planning, hardware, infrastructure, installation, utility engagement, and charging optimization.
Revenue of these commercial offerings are as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2023202220232022
Proterra Transit$21,113 $50,819 $65,975 $86,200 
Proterra Powered & Energy64,601 23,745 99,268 46,945 
Total$85,714 $74,564 $165,243 $133,145 
Product Warranties
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, 2023
Warranty reserve- beginning of period$25,513 
Warranty costs incurred(1,361)
Net changes in liability for pre-existing warranties, including expirations(3,000)
Provision for warranty9,017 
Warranty reserve- end of period$30,169 
Adopted Accounting Guidance and Accounting Pronouncements Not Yet Effective
There have been no recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the six months ended June 30, 2023 that are of significance or potential significance to the Company.
2.    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. 
22

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial assets and liabilities measured at fair value on a recurring basis using the above input categories were as follows (in thousands):
Pricing CategoryFair Value at
June 30, 2023December 31, 2022
Assets:
Cash equivalents and marketable securities:
Money market fundsLevel 1$36,648 $14,941 
Short-term investments:
U.S. Treasury securitiesLevel 1156,615 224,359 
Total$193,263 $239,300 
Liabilities:
Other non-current liabilities
Derivative liabilityLevel 3$81,300 $— 
Total$81,300 $— 
The Company’s short-term investments were 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 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 are 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.
As of June 30, 2023, the Company has $26.6 million of long-term investments recorded in other assets in the condensed consolidated balance sheets, comprised of minority ownership of equity investments in privately held entities. The long-term investment balances include $25.0 million strategic equity investment made in the third quarter of 2022 in an entity that the Company expects to produce lithium iron phosphate (LFP) battery cells in the United States in the coming years which is expected to provide the Company with development opportunities for battery packs with another cell chemistry to address additional segments of the commercial vehicle market. These investments do not have a readily determinable fair value and are accounted for under a measurement alternative at cost, less impairment, adjusted for observable price changes. No impairment charges or observable price changes were recognized in the six months ended June 30, 2023 and 2022. There are no unrealized gains or losses associated with these investments as of June 30, 2023.
The following is a summary of cash equivalents and marketable securities as of June 30, 2023 (in thousands):
Amortized CostUnrealized GainEstimated Fair Value
Cash equivalents:
Money market funds$36,648 $— $36,648 
Short-term investments:
U.S. Treasury securities156,646 (31)156,615 
Total$193,294 $(31)$193,263 
As of June 30, 2023, the contractual maturities of the short-term investments were less than one year.
23

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of cash equivalents and marketable securities as of December 31, 2022 (in thousands):
Amortized CostUnrealized LossEstimated Fair Value
Cash equivalents:
Money market funds$14,941 $— $14,941 
Short-term investments:
U.S. Treasury securities224,904 (545)224,359 
Total$239,845 $(545)$239,300 
As of December 31, 2022, the contractual maturities of the short-term investments were less than one year.
The fair value of derivative liability under the Convertible Notes was measured as the difference between the estimated value of the Convertible Notes with and without the embedded features. See Note 4, Debt, for additional information on the Convertible Notes. The combined value of the Convertible Notes was $267.4 million as of June 30, 2023.
A summary of the changes of the derivative liability is as follows (in thousands):
Derivative liability
Fair value at issuance as of March 31, 2023$135,678 
Change in fair value(33,578)
Reclassification of liability upon charter amendment(20,800)
Fair value as of June 30, 2023
$81,300 
The change in fair value of derivative liability is recorded in the statements of operations. On June 23, 2023, the Company received stockholder approval to increase the number of authorized shares and subsequently filed a certificate of amendment with the State of Delaware. Upon amending the certificate of incorporation, certain embedded conversion features associated with the Convertible Notes no longer qualify for derivative accounting because the Company has sufficient number of authorized shares to issue upon conversion of the Convertible Notes. The carrying amount of the derivative liability of $20.8 million associated with those conversion features, which is the fair value as of June 23, 2023, was reclassified to stockholders’ equity in accordance with Topic 815, Derivatives and Hedging. The fair value change in derivative liability was caused by changes of stock price and certain underlying assumptions related to the likelihood of conversion.
The value was determined utilizing a Monte Carlo simulation pricing model and also utilized a discounted cash flow model prior to obtaining the shareholder approval to the Nasdaq Proposal discussed in Note 4, Debt, based on certain significant inputs not observable in the market, and thus represents a level 3 measure. The key inputs to the valuation models include equity volatility, likelihood and expected term until a liquidity event, risk-free interest rate and estimated yield for the Convertible Notes.
3.    Balance Sheet Components
Cash and cash equivalents consisted of the following (in thousands):
June 30, 2023December 31, 2022
Cash
$27,553 $58,754 
Cash equivalents
36,648 14,941 
Total cash and cash equivalents
$64,201 $73,695 
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. The restricted cash is
24

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
primarily collateral for performance bonds issued to certain customers. The collateral is provided in the form of a cash deposit to either support the bond directly or to collateralize a letter of credit that supports the performance bonds.
June 30, 2023December 31, 2022
Cash and cash equivalents
$64,201 $73,695 
Restricted cash, current portion
12,565 12,565 
Total cash and cash equivalents, and restricted cash
$76,766 $86,260 
Inventories consisted of the following (in thousands):
June 30, 2023December 31, 2022
Raw materials
$240,558 $127,199 
Work in progress
30,049 21,153 
Finished goods
12,439 13,518 
Service parts
9,201 7,697 
Total inventories
$292,247 $169,567 
Increases in Raw materials as of June 30, 2023 is primarily related to the timing of receipts of lithium-ion cells for our battery packs and increase of work in progress and finished goods mainly due to timing of bus deliveries. For the three months ended June 30, 2023, $6.8 million of expenses were recorded related to the write down of inventories for excess or obsolete inventories and lower of cost or market adjustment. The reserve expenses were immaterial for each of the three and six months ended June 30, 2022, and the three months ended March 31, 2023.
Property, plant, and equipment, net, consisted of the following (in thousands):
June 30, 2023December 31, 2022
Computer hardware
$6,063 $5,465 
Computer software
16,056 11,012 
Internally used vehicles and charging systems
11,738 15,177 
Leased vehicles and batteries
5,142 5,142 
Leasehold improvements
30,938 10,716 
Machinery and equipment
53,999 28,942 
Office furniture and equipment
3,408 2,523 
Tooling
24,316 22,430 
Finance lease right-of-use assets
878 179 
Construction in progress
30,399 72,505 
182,937 174,091 
Less: Accumulated depreciation and amortization
(72,231)(66,539)
Total
$110,706 $107,552 
Construction in progress was comprised of various assets that are not available for their intended use as of the balance sheet date, and mainly related to the equipment and facility build out at the battery manufacturing facility (Powered 1) in Greer, South Carolina.
For the three and six months ended June 30, 2023, depreciation and amortization expense were $4.9 million and $9.6 million, respectively. For the three and six months ended June 30, 2022, depreciation and amortization expense were $3.3 million and $6.7 million, respectively.
25

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accrued liabilities consisted of the following (in thousands):
June 30, 2023December 31, 2022
Accrued payroll and related expenses
$9,861 $8,647 
Accrued sales and use tax
339 1,784 
Warranty reserve
8,098 8,406 
Accrued supplier liability1,170 7,699 
Insurance related890 4,445 
Other accrued expenses
3,215 2,570 
Total
$23,573 $33,551 

Other long-term liabilities consisted of the following (in thousands):
June 30, 2023December 31, 2022
Warranty reserve$22,071 $17,107 
Finance lease liabilities, non-current461 57 
Total$22,532 $17,164 
4.    Debt
Debt, net of debt discount and issuance costs, consisted of the following (in thousands):
June 30, 2023December 31, 2022
Senior Credit Facility
$— $— 
Convertible Notes
180,629 122,692 
Total debt    
$180,629 $122,692 
Less debt, current    
180,629 122,692 
Debt, non-current
$— $— 
Senior Credit Facility
In May 2019, the Company entered into the Senior Credit Facility with borrowing capacity up to $75.0 million. The commitment under the Senior Credit Facility is available to the Company on a revolving basis through the earlier of May 9, 2024 or 91 days prior to the stated maturity of any subordinated debt in aggregate amount of $7.5 million or more. The maximum availability under the Senior Credit Facility is based on certain specified percentage of eligible accounts receivable and inventory, subject to certain reserves, to be determined in accordance with the Senior Credit Facility. The Senior Credit Facility includes a $25.0 million letter of credit sub-line as of June 30, 2023. Subject to certain conditions, the commitment may be increased by $50.0 million upon approval by the lender, and at the Company’s option, the commitment can be reduced to $25.0 million or terminated upon at least 15 days’ written notice.
The Senior Credit Facility is secured by a security interest in substantially all of the Company’s assets except for intellectual property and certain other excluded assets.
Borrowings under the Senior Credit Facility bore interest at per annum rates equal to, at the Company’s option, either (i) the base rate plus an applicable margin for base rate loan, or (ii) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin for LIBOR loan. The base rate is calculated as the greater of (a) the Lender prime rate, (b) the federal funds rate plus 0.5%, and (c) one-month LIBOR plus 1.0%. The applicable margin is calculated based on a pricing grid linked to quarterly average excess availability (as a percentage of borrowing capacity). For base rate loans, the applicable margin ranges from 0.0% to 1.5%, and for LIBOR loans, it ranges from 1.5% to 3.0%. The Senior Credit Facility contains certain customary non-financial covenants. In addition, the Senior Credit Facility requires the Company to maintain a fixed charge coverage ratio of at least 1.00:1.00 during such times as a covenant trigger event shall exist. 
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 3, 2023, the Company entered into the Third Amendment to the Senior Credit Facility to replace the references of LIBOR in the loan document with Term SOFR, a rate based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York.
There was no outstanding balance for borrowings under the Senior Credit Facility as of June 30, 2023 and December 31, 2022. There was an aggregate of $20.1 million in letters of credit outstanding under the Senior Credit Facility as of June 30, 2023.
Small Business Administration Loan
In May 2020, the Company received Small Business Administration (the “SBA”) loan proceeds of $10.0 million from Town Center Bank pursuant to the Paycheck Protection Program (the “PPP loan”) under the “Coronavirus Aid, Relief and Economic Security (CARES) Act”. The PPP loan was in the form of a note with an original maturity in May 2022, and was extended to May 2025 based on the SBA’s interim final rule. The interest rate was 1.0% per annum.
In May 2022, the SBA approved the Company’s PPP loan forgiveness application, and the PPP loan of $10.0 million was forgiven in full and the previously paid interest of approximately $0.2 million was refunded. A total of $10.2 million was recorded as gain on debt extinguishment in the Company’s consolidated statements of operations.
Convertible Notes
In August 2020, Legacy Proterra issued $200.0 million aggregate principal amount of Convertible Notes with an initial maturity date on August 4, 2025. The Convertible Notes had a cash interest of 5.0% per annum payable at each quarter end and a paid-in-kind (“PIK”) interest of 4.5% per annum payable by increasing the principal balance at each quarter end.
Each of the Convertible Notes rank equally without preference or priority of any kind over one another, but senior in all rights, privileges and preferences to all shares of the Company’s capital stock and all other securities of the Company that are convertible into or exercisable for the Company’s capital stock directly or indirectly. The Convertible Notes are secured by substantially all of the assets of Legacy Proterra, including its intellectual property.
Prior to the maturity date or prior to the payment or conversion of the entire balance of the Convertible Notes, in the event of a liquidation or sale of the Company, the Company shall pay to the holders of Convertible Notes the greater of (i) 150% of the principal balance of the Convertible Notes or (ii) the consideration that the holders would have received had the holders elected to convert the Convertible Notes into common stock immediately prior to such liquidation event. The Company may not make prepayment unless approved by the required holders of the Convertible Notes.
The Convertible Notes do not entitle the holders to any voting rights or other rights as a stockholder of the Company, unless and until the Convertible Notes are actually converted into shares of the Company’s capital stock in accordance with their terms.
The Note Purchase Agreement contains certain customary non-financial covenants. In addition, the Note Purchase Agreement requires the Company to maintain liquidity at quarter end (“Minimum Liquidity Covenant”) of not less than the greater of (i) $75.0 million and (ii) four times of Cash Burn for the three-month period then ended. See below for details regarding modifications to the Minimum Liquidity Covenant.
In connection with the issuance of the Convertible Notes, the Company issued warrants to the holders of Convertible Notes to purchase 4.6 million shares of Company capital stock at an exercise price of $0.02 per share. The warrants were freestanding financial instruments and, prior to the Closing, were classified as a liability due to the possibility that they could become exercisable into Legacy Proterra convertible preferred stock. Upon the consummation of the Merger, the stock issuable upon exercise of the warrants is Proterra 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. The warrant liability of $29.0 million was initially measured
27

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
at fair value on its issuance date and recorded as a debt discount and amortized during the term of the Convertible Notes to interest expense using the effective-interest method. The warrant liability was remeasured on a recurring basis at each reporting period date, with the change in fair value reported in the statement of operations. Upon any exercise of the warrants to common stock, the carrying amount of the warrant liability was reclassified to stockholders’ equity. In the fourth quarter of 2021, all remaining outstanding warrants were exercised.
Prior to the Closing, the embedded features of the Convertible Notes were composed of conversion options that had the economic characteristics of a contingent early redemption feature settled in a variable number of shares of Company stock. These conversion options were bifurcated and accounted for separately from the host debt instrument. The derivative liability of $68.5 million was initially measured at fair value on the issuance date of the Convertible Notes and recorded as debt discount and was amortized during the term of the Convertible Notes to interest expense using the effective-interest method. The derivative liability was remeasured on a recurring basis at each reporting period date, with the change in fair value reported in the statement of operations. Upon the consummation of the Merger, the embedded conversion features associated with the Convertible Notes no longer qualified for derivative accounting since the conversion price became fixed. The carrying amount of the embedded derivative, the fair value as of the Closing Date, was reclassified to stockholders’ equity in accordance with Topic 815, Derivatives and Hedging.
Issuance costs of $5.1 million were also recorded as debt discount and are amortized during the term of the Convertible Notes to interest expense using the effective interest method.
On June 14, 2021, certain Convertible Note holders with an original aggregate principal amount of $46.5 million elected to convert their Convertible Notes at the Closing. An aggregate of $48.8 million principal and interest was reclassified to additional paid-in capital, and $21.0 million of remaining related debt issuance costs were expensed to interest expense.
The outstanding Convertible Notes including accrued interest will be automatically converted to common stock at $6.5712 per share pursuant to the mandatory conversion provisions, if and when the volume-weighted average price (“VWAP”) of the common stock exceeds $9.86 over 20 consecutive days subsequent to January 13, 2022.
The Company was not in compliance with the Minimum Liquidity Covenant as of December 31, 2022. The Company received a waiver of the Minimum Liquidity Covenant in February 2023 which provided for retroactive effect, so that no such event of default occurred in the year ended December 31, 2022.
The Company’s inability to deliver audited financial statements certified by the Company’s independent registered public accounting firm without qualification (or similar notation) as to going concern with respect to the 2022 Financials would have been an event of default under both the Senior Credit Facility and the Convertible Notes. On March 14, 2023, the Company obtained a limited advance waiver from the holders of the Convertible Notes with respect to the Going Concern Covenant until March 31, 2023. On March 31, 2023, the Company received a waiver for the Senior Credit Facility to consent to the delivery of the 2022 Financials with a going concern qualification and waived the cross default of the corresponding covenant under the Convertible Notes in connection with the 2022 Financials.
As a result, the Company was in compliance with the covenants contained in the Senior Credit Facility and Convertible Facility as of March 31, 2023.
Amendment to the Notes Purchase Agreement and Convertible Notes
On March 31, 2023, the Company entered into an amendment to the Notes Purchase Agreement and Convertible Notes, which includes amendments to the interest rate, maturity date, mandatory and optional conversion rights, limitations on the issuance of shares of the Company’s common stock upon conversion and the
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Company’s obligation to seek stockholder approvals as described below, minimum liquidity requirements and certain other covenants described in further detail below (together, the “Convertible Notes Amendments”).
The Convertible Notes Amendments provide for (i) a waiver of the Minimum Liquidity Covenant through May 31, 2024, requiring instead a minimum Liquidity of $125.0 million as of the last day of each quarter from March 31, 2023 through and including May 31, 2024, and (ii) a waiver of the requirement that the Company’s financial statements be certified by the Company’s auditor without qualification (or similar notation) as to going concern for the Company’s consolidated financial statements for fiscal years 2022 and 2023. After May 31, 2024, the Convertible Notes require the Company to maintain Liquidity at each quarter end of not less than the greater of (i) $75.0 million and (ii) four times of Cash Burn for the three-month period then ended. In addition, the Convertible Notes contain an additional holding company covenant limiting the Company’s ability to engage in business, operations and activities other than as set forth in the Convertible Notes.
The Convertible Notes Amendments extend the maturity date of the Convertible Notes to August 4, 2028, except with respect to $3.5 million original principal amount, which have since also been extended as described below. The annual interest rate was increased to 12.0% per annum, consisting of 5.0% in cash and 7.0% PIK interest with the PIK default rate proportionally increased to 9.0%. The increased PIK interest on the Convertible Notes is to be accrued from March 17, 2023.
In addition, the Convertible Notes Amendments amended the mandatory conversion provision in the existing Convertible Notes to provide for mandatory conversion only on or after March 31, 2024, if the daily VWAP of the Company’s common stock equals or exceeds (a) $15.00 after March 31, 2024 to but not including March 31, 2025, or (b) $12.00 after March 31, 2025, in each case, over a period of 20 consecutive trading days and providing that if the mandatory conversion trigger is met, to convert at a conversion price equal to (i) $4.00 until 1/3 of the aggregate balance of such Convertible Note (including all PIK interest and cash interest accrued but not paid) is converted, (ii) thereafter, $5.00 until 1/3 of the aggregate balance of the such Convertible Note is converted, and (iii) thereafter, $6.00. The conversion prices will be equitably adjusted to reflect any stock dividends, stock splits, reverse stock splits, recapitalizations or other similar events.
In addition, following the Convertible Notes Amendments, holders of the Convertible Notes have an additional option, at any time on or after March 31, 2024 until maturity of the Convertible Notes, to convert at a conversion price equal to (i) $4.00 until 1/3 of the aggregate balance of the such Convertible Note is converted, (ii) thereafter, $5.00 until 1/3 of the aggregate balance of the such Convertible Note is converted, and (iii) thereafter, $6.00, which conversion right shall be exercisable in whole or in part from time to time; provided, however, that if the Company consummates a Qualified Financing (as defined below), the holder, at its option, at any time or from time to time on or after March 31, 2024, may convert its Convertible Notes at a conversion price equal to 75% of the lowest per share cash purchase price of the common stock or preferred stock sold by Proterra in any Qualified Financing, subject to a $1.016 floor conversion price. “Qualified Financing” means, as of any date of determination, a bona fide equity financing, if any, on or after March 31, 2023, in which the Company or Proterra OpCo sells equity or equity-linked securities in a capital-raising transaction (which may include a public offering of the Company’s equity securities).
Subject to certain exceptions, the Convertible Notes also restrict the Company’s ability to, among other things: dispose of or sell the Company’s assets; make material changes in the Company’s business or management, or accounting and reporting practices; acquire, consolidate, or merge with other entities; incur additional indebtedness; create liens on the Company’s assets; pay dividends; make investments; enter transactions with affiliates; and pre-pay other indebtedness.
The Convertible Notes also contain customary events of default, including, among others, the failure to make any payment of principal (or any other payment) when due under the Convertible Notes within five business days of the applicable due date, the breach of the Minimum Liquidity Covenant or any of the negative covenants, and the commencement of an insolvency proceeding. A default under the Company’s Convertible Notes would result in a cross-default under the Senior Credit Facility.
The Convertible Notes provide that no “person” or “group” (within the meaning of Section 13(d) of the Exchange Act) will be entitled to receive any of the Company’s common stock otherwise deliverable upon conversion of the Convertible Notes to the extent that such receipt would cause such person or group to become,
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
directly or indirectly, a “beneficial owner” as defined in Rule 13d-3 under the Exchange Act of more than 40% of the Company’s common stock outstanding at such time (the “Beneficial Ownership Limitation”), and no conversion of the Convertible Notes shall take place to the extent (but only to the extent) that such receipt (or conversion) would cause any Note holder or its affiliates to beneficially own shares of the Company’s common stock in excess of the Beneficial Ownership Limitation.
The Convertible Notes also provide for certain limitations on the conversion rights of the holders of the Convertible Notes, including caps on the number of shares of common stock deliverable upon conversion subject to obtaining stockholder approval, as described below. The Company has agreed to use its best efforts to obtain stockholder approval of (i) the issuance of more than 19.99% of the Company’s outstanding common stock in accordance with Nasdaq listing standards (the “Nasdaq Proposal”) and (ii) an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock.
Prior to the receipt of stockholder approval of the Nasdaq Proposal, the maximum number of shares of common stock that may be issued upon conversions of the Convertible Notes will be 45,257,360 shares. If stockholder approval of the Nasdaq Proposal is obtained, until and unless the Company receives stockholder approval of an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of the Company’s common stock, the maximum number of shares of common stock that may be issued upon conversions of the Convertible Notes will be 177,782,000 shares. If the Company receives both stockholder approvals, the number of shares of the Company’s common stock that may be issued upon conversion of the Convertible Notes will be limited by the number of authorized and available shares, subject to the Beneficial Ownership Limitation described above.
The Company was obligated to use best efforts to seek the above stockholder approvals as promptly as practicable and no later than the Company’s 2023 annual meeting of stockholders; provided that if such stockholder approvals are not received at the Company’s 2023 annual meeting of stockholders, the Company is obligated to call a special meeting of stockholders every 6 months until such stockholder approvals are received.
For any additional shares exceeding the 45,257,360 or 177,782,000 share limits set forth above, the Convertible Notes holders had the right to elect either (x) to rescind the conversion with respect to (and only with respect to) the portion of the balance of the Convertible Notes that relates to the number of shares of the Company’s common stock exceeding the applicable limitations (the “Excess Shares”), or (y) for the Company to pay to such Convertible Note holder an amount equal to the product of (A) the number of Excess Shares, multiplied by (B) the simple average of the daily VWAP of the common stock for the 20 consecutive trading days ending on and including the trading day immediately preceding the applicable conversion date.
Immediately prior to the Convertible Notes Amendments, the Convertible Notes, net of debt discount and issuance costs, consisted of the following (in thousands):
March 31, 2023December 31, 2022
Principal
$153,500 $153,500 
PIK interest
19,196 17,301 
Total principal
172,696 170,801 
Less debt discount and issuance costs
(44,275)(48,109)
Total Convertible Notes
$128,421 $122,692 
In accordance with ASC Topic No. 470-50, Debt – Modifications and Extinguishments, the Convertible Notes Amendments were determined to be an extinguishment of the existing debt and an issuance of new debt upon the effectiveness of the Convertible Notes Amendments on March 31, 2023. The new debt is initially recorded at its fair value of $313.4 million, and a loss on debt extinguishment is calculated as the difference between the fair value of the new debt, the net carrying amount of the old debt, and other adjustments required under US GAAP. The Company recorded a loss on debt extinguishment of $177.9 million in the condensed consolidated statements of operations and the $7.2 million fair value of the mandatory conversion feature under the Convertible Notes immediately prior to the Convertible Notes Amendments were recorded to offset stockholders’ equity in accordance with Topic 815, Derivatives and Hedging. The embedded features in the Convertible Notes include
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
conversion options that had the economic characteristics of a contingent early redemption feature settled in a variable number of shares of the Company’s common stock. These conversion features were bifurcated and accounted for as a derivative liability separately from the host debt instrument. As of March 31, 2023, the fair value of derivative liability of $135.7 million was recorded as debt discount on the condensed consolidated balance sheets, which will be amortized during the term of the Convertible Notes to interest expense using the effective-interest method. The derivative liability will be remeasured on a recurring basis at each reporting period date, with the change in fair value reported in the statement of operations. The Convertible Notes Amendments were a non-cash transaction and had no impact to the financing activities in the statements of cash flows for the three and six months ended June 30, 2023.
Upon effectiveness of the Convertible Notes Amendments, the Convertible Notes, inclusive of debt premium, consisted of the following (in thousands):
March 31, 2023
Principal
$153,500 
PIK interest
19,371 
Total principal
172,871 
Plus debt premium
4,864 
Total Convertible Notes
$177,735 
On May 19, 2023, $3.5 million original principal amount of Convertible Notes was amended to extend the maturity date to August 4, 2028.
On June 23, 2023, the stockholders of the Company approved and the Company filed in Delaware an amendment to the Company’s Certificate of Incorporation to increase the total number of authorized shares of common stock from 500,000,000 shares to 1,000,000,000 shares. The stockholders also approved the Nasdaq Proposal.
Upon receiving the stockholder approval, certain embedded conversion features associated with the Convertible Notes no longer qualify for derivative accounting. The carrying amount of the derivative liability of $20.8 million associated with those conversion features, which is the fair value as of June 23,2023, was reclassified to stockholders’ equity in accordance with Topic 815, Derivatives and Hedging. The remaining derivative liabilities are continually remeasured on a recurring basis at each reporting period date, with the change in fair value reported in the statement of operations. See Note 2, Fair Value of Financial Instruments, for details of valuation methodology and impact of change of fair value of derivative liability.
As of June 30, 2023, the Convertible Notes, inclusive of debt premium, consisted of the following (in thousands):
June 30, 2023
Principal
$153,500 
PIK interest
22,388 
Total principal
175,888 
Plus debt premium
4,741 
Total Convertible Notes
$180,629 
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The amortization expense of debt discount (premium) and issuance costs were $(0.1) million and $3.7 million for the three and six months ended June 30, 2023, respectively. The amortization expense of debt discount and issuance costs were $3.5 million and $6.8 million for the three and six months ended June 30, 2022, respectively.
As of June 30, 2023, the contractual future principal repayments of the total debt were as follows (in thousands):
2028 (1)
$175,888 
Total debt
$175,888 
__________________
(1)Including PIK interest added to principal balance through June 30, 2023.
The Company was in compliance with the covenants contained in the Senior Credit Facility and Convertible Facility as of June 30, 2023.
Due to the Company’s potential inability to comply with the Minimum Liquidity Covenant in future periods and any resulting potential events of default under the Convertible Notes and the Senior Credit Facility, even though the Convertible Notes have a maturity date in August 2028, the related liabilities were classified as current liability on the Company’s condensed consolidated balance sheets as of June 30, 2023.
5.    Leases
As a Lessor
The net investment in leases were as follows (in thousands):
June 30, 2023December 31, 2022
Net investment in leases, current$984 $985 
Net investment in leases, non-current9,925 9,304 
Total net investment in leases$10,909 $10,289 
Interest income from accretion of net investment in lease was not material in the six months ended June 30, 2023 or 2022.
Future minimum payments receivable from operating and sales-type leases as of June 30, 2023 for each of the next five years were as follows:
Operating leasesSales-type leases
Remainder of 2023$175 $435 
2024— 1,010 
2025— 1,762 
2026— 1,808 
2027— 1,808 
Thereafter
— 4,896 
Total minimum lease payments
$175 $11,719 
As a Lessee
The Company leases its office and manufacturing related facilities in Burlingame and City of Industry, California, Greenville and Greer, South Carolina, and Rochester Hills, Michigan under operating lease agreements with various expiration dates from 2023 through 2033.
The Company had no material finance leases as of June 30, 2023.
32

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Maturities of operating lease liabilities as of June 30, 2023 were as follows (in thousands):
Remainder of 2023$4,016 
20244,204 
20253,487 
20262,615 
20272,238 
Thereafter
9,858 
Total undiscounted lease payment26,418 
Less: imputed interest(4,956)
Total operating lease liabilities$21,462 
Operating lease expense was $1.9 million and $4.0 million for the three and six months ended June 30, 2023, respectively. Operating lease expense was $1.9 million and $3.5 million for the three and six months ended June 30, 2022, respectively.
Short-term and variable lease expenses for the six months ended June 30, 2023 and 2022 were not material.
Supplemental cash flow information related to leases were as follows (in thousands):
Six Months Ended June 30,
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
$(4,170)$(2,916)
Lease liabilities arising from obtaining right-of-use assets:
Operating lease$— $4,178 
Finance lease$699 $— 
Operating lease right-of-use assets and liabilities consisted of the following (in thousands):
June 30, 2023December 31, 2022
Operating leases
Operating lease right-of-use assets
$16,986 $20,274 
Operating lease liabilities, current
5,032 6,876 
Operating lease liabilities, non-current
16,430 18,098 
Total operating lease liabilities
$21,462 $24,974 
The weighted average remaining lease term and discount rate of operating leases were 6.5 years and 6.1%, respectively, as of June 30, 2023. The weighted average remaining lease term and discount rate of operating leases were 6.4 years and 6.2%, respectively, as of December 31, 2022.
As of June 30, 2023, the Company had no significant additional operating leases and finance leases that have not yet commenced.
6.    Commitments and Contingencies
Purchase Commitments
As of June 30, 2023, the Company had outstanding inventory and other purchase commitments of $2.0 billion, excluding unestimatable variable components. Most of the commitments relate to the expected purchase of cylindrical cells to be manufactured at a yet to be built LG Energy Solution battery cell plant in the United
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
States, pursuant to a long-term supply agreement through 2028. The terms of the agreement require the Company to make certain prepayments that vary in size and that are made as milestones are met on the construction of the US facility. As of June 30, 2023, the Company has made a $10.0 million prepayment, which was recorded as the long-term inventory prepayment on the consolidated balance sheets. Subject to the Chapter 11 Cases, the Company expects the next prepayment to be made within the next six to twelve months. The prepayments will be recouped by the Company by offsetting a predetermined amount per unit on cells purchased from LG Energy Solution. See considerations of the Chapter 11 Cases in Note 11, Subsequent Events.
Letters of Credit
As of June 30, 2023, the Company had letters of credit outstanding totaling $20.2 million, which will expire over various dates in 2023 and 2024.
Legal Proceedings
The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. From time to time in the normal course of business, various claims and litigation have been asserted or commenced. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability or damages. Any claims or litigation could have an adverse effect on the Company’s business, financial position, operating results, or cash flows in or following the period that claims or litigation are resolved.
As of June 30, 2023 and December 31, 2022, the Company was not a party to any legal proceedings that would have a material adverse effect on its business.
7.    Stockholders’ Equity
On June 23, 2023, the stockholders of the Company approved and the Company filed in Delaware an amendment to the Company’s Certificate of Incorporation to increase the total number of authorized shares of common stock from 500,000,000 shares to 1,000,000,000 shares. As of June 30, 2023, the Company is authorized to issue 1,010,000,000 shares of capital stock, with a par value of $0.0001 per share. The authorized shares consist of 1,000,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of June 30, 2023, 227,770,490 shares of common stock were issued and outstanding, and no shares of preferred stock were issued and outstanding. The holders of each share of common stock are entitled to one vote per share.
As of June 30, 2023, the Company had reserved shares of common stock for issuance as follows (in thousands):
2010 Equity Incentive Plan
14,778 
2021 Equity Incentive Plan
30,472 
2021 Employee Stock Purchase Plan
4,877 
Warrants
Earnout Stock
18,009 
Convertible notes247,835 
Total
315,972 
8.    Equity Plans and Stock-based Compensation
2010 Equity Incentive Plan
In 2010, Legacy Proterra adopted the 2010 Equity Incentive Plan (the “2010 Plan”), which provided for the grant of stock options, stock appreciation rights, restricted stock, and restricted stock units. Upon Closing, the then outstanding options under the 2010 Plan were converted into options exercisable to purchase an aggregate of 22,532,619 shares of common stock. Following the Closing, such options continue to be subject to the terms of the 2010 Plan and applicable award agreements; however, no further awards can be granted under the 2010
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Plan. As of June 30, 2023, options to purchase 14,777,745 shares of common stock remained outstanding under the 2010 Plan.
2021 Equity Incentive Plan
The 2021 Plan was adopted by the ArcLight Board prior to the Closing, approved by ArcLight’s shareholders on June 11, 2021, and became effective upon the Closing Date. The Equity Incentive Plan allows the Company to grant awards of stock options, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), performance awards, and stock bonus awards to officers, employees, directors and consultants.
The Company initially reserved 10,000,000 shares of common stock, plus 387,531 reserved shares not issued under the 2010 Plan on the effective date of the 2021 Plan. The number of shares reserved for issuance under the 2021 Plan increases automatically on January 1 of each of 2022 through 2031 by the number of shares equal to the lesser of 4% of the total number of outstanding shares of all classes of common stock as of the immediately preceding December 31, or a number as may be determined by the Board. In the first quarter of 2022 and 2023, the shares of common stock reserved for issuance were increased by 8,878,388 and 9,050,606, respectively, pursuant to the 2021 Plan.
The exercise price of stock options granted must be at least equal to the fair market value of common stock on the date of grant. Incentive stock options granted to an individual who holds, directly or by attribution, more than ten percent of the total combined voting power of all classes of capital stock must have an exercise price of at least 110% of the fair market value of common stock on the date of grant. Subject to certain adjustments, no more than 30,000,000 shares may be issued pursuant to the exercise of incentive stock options granted under the 2021 Plan.
The maximum term of options granted is ten years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who holds, directly or by attribution, more than ten percent of the total combined voting power of all classes of capital stock is five years from the date of grant.
Stock option and RSU awards generally vest annually over a four-year period.
2021 Employee Stock Purchase Plan
Proterra’s 2021 Employee Stock Purchase Plan (the “ESPP”), including the authorization of the initial share reserve thereunder, was adopted by the ArcLight Board prior to the Closing, approved by ArcLight’s shareholders on June 11, 2021, and became effective upon the Closing Date.
An aggregate of 1,630,000 shares of common stock were reserved and available for sale under the ESPP. The aggregate number of shares reserved for sale under the ESPP increases automatically on January 1 of each of 2022 through 2031 by a number of shares equal to the lesser of 1% of the total number of outstanding shares of common stock as of the immediately preceding December 31 or a number of shares as may be determined by the Board or the compensation committee. The aggregate number of shares issued over the term of the ESPP, subject to certain adjustments, may not exceed 16,300,000 shares. In the first quarter of 2022 and 2023, the shares of common stock reserved for issuance were increased by 2,219,597 and 2,262,651, respectively, pursuant to the ESPP.
The ESPP allows eligible employees to purchase shares of common stock at a discount through payroll deductions of up to 15% of their eligible compensation, at not less than 85% of the fair market value, as defined in the ESPP, subject to any plan limitations. A participant may purchase a maximum of 2,500 shares during each 6-month offering period and $25,000 in any one calendar year. The offering periods generally start on the first trading day on or after November 15th and May 15th of each year.
The first offering period started in the fourth quarter of 2021. The Company calculated the fair value of the employees’ purchase rights related to the ESPP using the Black-Scholes model and recorded approximately $0.6 million and $0.6 million of stock-based compensation expense for the six months ended June 30, 2023 and 2022, respectively. In the three months ended June 30, 2023 and 2022, the Company issued 586,008 and 325,106 shares of common stock under the ESPP with a purchase price of $1.13 and $4.62 per share, respectively.
35

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company’s stock option activity and related information was as follows:
Options Outstanding
Number of Stock Options OutstandingWeighted- Average Exercise PriceWeighted-Average Remaining Contractual Life
(Years)
Aggregate Intrinsic Value
(in thousands)
Balance as of December 31, 2022 (1)
14,256,697 $4.32 5.5$9,469 
Granted
3,035,164 1.41 
Exercised
(57,036)1.98 
Cancelled/forfeited/expired (2)
(1,618,145)5.45 
Balance as of June 30, 2023 (3)
15,616,680 $3.65 4.9$— 
Exercisable as of June 30, 2023 (4)
11,872,462 $3.96 3.1$— 
__________________
(1)Excluding Equity Awards of 2,677,500 shares and Milestone Options of 669,375 shares. See below for further details.
(2)Excluding 502,032 shares cancelled under the Equity Awards with weighted average exercise price of $19.61 per share.
(3)Excluding Equity Awards of 2,175,468 shares and Milestone Options of 669,375 shares outstanding as of June 30, 2023.
(4)Excluding 2,008,124 shares exercisable under the Equity Awards with weighted average exercise price of $19.61 per share as of June 30, 2023.
In March 2020, in conjunction with Mr. Allen’s appointment as the then President and Chief Executive Officer, the board of directors of Legacy Proterra approved a grant to Mr. Allen of stock option awards with respect to 4,685,624 shares, comprised of (1) 1,338,749 shares of a time-based award with an exercise price of $5.33 per share vesting quarterly over four years, (2) 2,677,500 shares of a time-based award consisting of four tranches with an exercise price of $11.21, $16.81, $22.41 and $28.02 per share, respectively, and vesting quarterly over four years (“Equity Awards”), and (3) 669,375 shares of milestone-based award with an exercise price of $5.33 per share vesting entirely and becoming exercisable on the first trading day following the expiration of the lockup period of the Company’s initial public offering or the consummation of a change in control of the Company or upon the consummation of a merger involving a special purpose acquisition company (“Milestone Options”). The stock-based compensation expense for Milestone Options was recognized at the time the performance milestone became probable of achievement, which was at the time of Closing. Upon Closing, the 669,375 shares underlying the Milestone Options fully vested, and $2.1 million stock-based compensation expense was recognized in June 2021. As of June 30, 2023, Mr. Allen retired from the board, and his unvested shares were canceled.
Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money stock options. The total intrinsic value of stock options exercised was $0.1 million for the six months ended June 30, 2023. The total estimated grant date fair value of stock options vested was $4.0 million for the six months ended June 30, 2023. As of June 30, 2023, the total unrecognized stock-based compensation expense related to outstanding stock options was $8.1 million, which is expected to be recognized over a weighted-average period of 3.1 years.
The fair value of stock options granted is estimated on the date of grant using the following assumptions:
Six Months Ended June 30,
20232022
Expected term (in years)
6.36.3
Risk-free interest rate
3.7 %2.0 %
Expected volatility
67.2 %55.1 %
Expected dividend rate
36

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
A summary of the Company's RSU activity and related information is as follows:
Number of RSUsWeighted Average Grant Date Fair Value
Balance as of December 31, 2022
5,733,227 $7.07 
Granted5,051,133 1.60 
Released(862,285)6.61 
Forfeited(1,481,739)5.58 
Balance as of June 30, 2023
8,440,336 $4.11 
The compensation expense related to the service-based RSU awards is determined using the fair market value of the Company’s common stock on the date of the grant. As of June 30, 2023, the total unrecognized stock-based compensation expense related to outstanding RSUs was $28.9 million, which is expected to be recognized over a weighted-average period of 3.1 years.
Stock-based Compensation Expense
Stock-based compensation expense included in operating results was as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2023202220232022
Cost of goods sold
$272 $378 $577 $894 
Research and development
1,265 1,288 2,457 2,281 
Selling, general and administrative
2,868 4,649 5,685 7,782 
Total stock-based compensation expense
$4,405 $6,315 $8,719 $10,957 
9.    Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less the weighted-average unvested common stock subject to repurchase or forfeiture as they are not deemed to be issued for accounting purposes. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, RSUs and warrants, to the extent they are dilutive.
37

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The computation of basic and diluted net loss per share of common stock attributable to common stockholders was as follows (in thousands, except for per share data):
Three Months Ended June 30, Six Months Ended June 30,
2023202220232022
Numerator:
Net loss
$(30,994)$(41,821)$(274,971)$(91,899)
Effect of dilutive securities:
Interest expense to be recognized upon conversion of Convertible Notes (1)
— (51,623)— (47,797)
Numerator for diluted EPS - Net loss after the effect of dilutive securities $(30,994)$(93,444)$(274,971)$(139,696)
Denominator:
Weighted-average shares used in computing net loss per share of common stock, basic
227,282 223,745 226,848 223,015 
Convertible Notes (1)
— 25,131 — 24,855 
Diluted weighted average shares227,282 248,876 226,848 247,870 
Net loss per share of common stock:
Basic
$(0.14)$(0.19)$(1.21)$(0.41)
Diluted$(0.14)$(0.38)$(1.21)$(0.56)
__________________
(1)Adjustment is under the “if-converted” method. Adjustments for the three months ended June 30, 2022 include write-off of $59.0 million unamortized debt discount of the Convertible Notes as of March 31, 2022, offset by the $7.4 million interest expense recorded in net loss of three months ended June 30, 2022. Adjustments for the six months ended June 30, 2022 include write-off of $62.3 million unamortized debt discount of the Convertible Notes as of December 31, 2021, offset by the $14.5 million interest expense recorded in net loss of six months ended June 30, 2022.

The Company applies the treasury stock method when calculating the diluted net income (loss) per share of common stock and “if-converted” method for Convertible Notes when applicable.
Prior to the Convertible Notes Amendments, the outstanding Convertible Notes including accrued interest would have been automatically converted to common stock at $6.5712 per share pursuant to the mandatory conversion provisions, if and when the VWAP exceeded $9.86 over 20 consecutive days subsequent to January 13, 2022. Following the Convertible Notes Amendments and as of June 30, 2023, the conditions for the convertible features under the Convertible Notes were not satisfied. See Note 4, Debt, for additional information on the conversion provisions of the Convertible Notes.
Since the Company was in a loss position after the effect of diluted securities, no adjustment is required to the weighted-average shares used in computing the diluted net loss per share as the inclusion of the remaining potential common stock shares outstanding would have been anti-dilutive. The potentially dilutive securities were as follows (in thousands):
June 30, 2023
Stock options and RSUs to purchase common stock26,902 
Warrants to purchase common stock
Convertible notes (2)
36,598 
Total 63,501 
__________________
(2)Calculated based on the Convertible Notes balance inclusive PIK interest as of June 30, 2023 and the optional conversion prices as described in Note 4, Debt.

10.    401(k) Plan
The Company sponsors a 401(k) defined contribution plan covering all eligible employees and provides a matching contribution for the first 4% of their salaries. The matching contribution costs incurred were $0.9 million
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
and $2.0 million in the three and six months ended June 30, 2023, respectively. The matching contribution costs incurred were $0.8 million and $1.5 million in the three and six months ended June 30, 2022, respectively.
11.    Subsequent Events
The Chapter 11 Cases
Background to Chapter 11 Cases
As previously disclosed, the Company has incurred net losses and negative cash flows from operations since inception and has funded operations primarily through a combination of equity and debt financing. The Company’s existing loan facilities include a requirement that the Company maintain minimum liquidity and deliver financial reports without a going concern qualification, which have been waived or modified as the Company pursued various strategies designed to improve liquidity and cash generated from operations, such as expense reduction and cash savings initiatives that include streamlining facilities, initiating working capital initiatives, and reducing overall selling, general and administrative expenses that include a workforce reduction announced in January 2023, the closure of the City of Industry facility by December 31, 2023 to improve operational efficiency and consolidating all battery production in our Powered 1 battery factory in the second half of 2023. Additionally, the Company explored potential options for raising additional funds through the issuance of equity, equity-linked, and/or debt securities, debt financings or other capital sources and/or strategic transactions. However, as disclosed in the Debtors’ filings in the Chapter 11 Cases, the Company has not been able to secure additional financing.
Voluntary Filing under Chapter 11
As a result of the liquidity shortfall and an inability to secure additional financing, on August 7, 2023 (the “Petition Date”), Proterra Inc and its subsidiary, Proterra Operating Company, Inc. (collectively, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (such court, the “Bankruptcy Court” and such cases, the “Cases”). The Cases are, pending an order authorizing joint administration by the Bankruptcy Court, currently administered under the captions In re Proterra Inc, Case No. 23-11120 (BLS) (Bankr. D. Del. 2023) and In re Proterra Operating Company, Inc., Case No. 23-11121 (BLS) (Bankr. D. Del. 2023), for the Company and Proterra Operating Company, Inc. respectively. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. To ensure their ability to continue operating in the ordinary course of business, the Debtors are seeking from the Bankruptcy Court a variety of “first-day” relief”, including, among other things, authority to use cash collateral, pay employee wages and benefits, pay vendors and suppliers in the ordinary course for all goods and services provided after the Petition Date and continue customer programs. As of August 8, 2023, the motions filed by the Debtors seeking this “first-day” relief are pending approval by the Bankruptcy Court on an interim or final basis, as applicable.
As previously disclosed by the Company, the filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the following debt instruments:
The Senior Credit Facility, which, as of June 30, 2023, has no outstanding balance and $20.1 million of letters of credit outstanding; and
The $175.9 million aggregate principal amount of Convertible Notes outstanding as of June 30, 2023.
The debt instruments set forth above provide that as a result of the Bankruptcy Petitions, the principal and interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the debt instruments set forth above are automatically stayed as a result of the Bankruptcy Petitions, and the creditors’ rights of enforcement in respect of the debt instruments set forth above are subject to the applicable provisions of the Bankruptcy Code.
In addition, the Company expects to reclassify all pre-petition debt obligations to liabilities subject to compromise on its condensed consolidated balance sheets because the filing of the Chapter 11 Cases
39

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
accelerated substantially all of the Company’s obligations under nearly all of its pre-petition debt instruments. Since the Petition Date occurred after June 30, 2023, these reclassifications are not reflected on the condensed consolidated balance sheets as of June 30, 2023 included herein. See Note 4, Debt for details of the Company’s debt obligations.
Reorganization Accounting
Beginning on the Petition Date, the Company will apply Financial Accounting Standards Board Codification Topic 852, Reorganizations (“ASC 852”) in preparing the consolidated financial statements. ASC 852 requires the financial statements, for the periods subsequent to the Petition Date and up to and including the period of emergence from Chapter 11 (the “Effective Date”), to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain charges incurred during the bankruptcy proceedings, such as the write-off of unamortized debt issuance costs and premium on debt subject to compromise, legal and professional fees incurred directly as a result of the bankruptcy proceeding are recorded as Reorganization items, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss. In addition, the balance sheet must distinguish between debtor pre-petition liabilities subject to compromise from pre-petition or post-petition liabilities that are not subject to compromise. Liabilities subject to compromise are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount.
Debtors-In-Possession
The Debtors are currently operating as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code. The Debtors have brought and will seek Bankruptcy Court approval of motions designed primarily to mitigate the impact of the Chapter 11 Cases on the Company’s operations, customers and employees. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. The Debtors have filed and will file motions with the Bankruptcy Court to authorize the Debtors to conduct their business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing the Debtors to, among other things: (i) pay employees’ wages and related obligations; (ii) pay prepetition claims of certain lien claimants and critical vendors; (iii) continue to operate their cash management system in a form substantially similar to pre-petition practice (iv) continue to maintain and administer certain existing customer programs; (v) pay taxes in the ordinary course; (vi) maintain their insurance program and surety bond program in the ordinary course; (vii) pay utility providers in the ordinary course; and (viii) to use cash collateral. In addition, the Debtors expect to seek Bankruptcy Court approval for an order limiting trading of the Company’s equity securities to protect the Company’s Net Operating Losses.
Marketing Process
In addition to the aforementioned first day motions, the Debtors expect to file a motion seeking Bankruptcy Court approval of certain procedures related to a marketing and bidding process for one or more potential sales or reorganization of all or certain assets of the Debtors, including the assets of Debtors’ Proterra Transit, Proterra Powered, and Proterra Energy business lines.
Automatic Stay
Subject to certain specific exceptions under the Bankruptcy Code, the Bankruptcy Petitions automatically stayed most judicial or administrative actions against the Debtors and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code.
Executory Contracts
Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, amend or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach
40

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this document, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease of the Debtors, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code.
Potential Claims
The Debtors will file with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units are required to file proofs of claim by the deadline for general claims, which deadline has not yet been set by the Bankruptcy Court.
Debtors will receive proofs of claim, that will be reconciled to amounts recorded in the Company’s accounting records. Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Company may ask the Bankruptcy Court to disallow claims that the Company believes are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Company may identify additional liabilities that will need to be recorded or reclassified to liabilities subject to compromise. In light of the substantial number of claims expected to be filed, the claims resolution process may take considerable time to complete and likely will continue throughout the Chapter 11 proceedings.
NASDAQ Delisting Proceedings
As previously disclosed, on August 8, 2023, the Company received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that the Company’s Common Stock, $0.0001 par value per share (the “Common Stock”), will be delisted from the Nasdaq Global Select Market. The Company does not intend to appeal this determination.
Trading of the Company’s Common Stock will be suspended by Nasdaq at the opening of business on August 17, 2023.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our audited financial statements for the year ended December 31, 2022 and the related notes incorporated by reference in our Annual Report (the “Annual Report”) on Form 10-K, filed with SEC on March 17, 2023 and amended on May 1, 2023. This discussion contains forward-looking statements and involves numerous risks and uncertainties. As a result of many factors, including those factors set forth in Part II, Item 1A titled “Risk Factors,” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read Part II, Item 1A titled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.
Overview
Proterra’s mission is to build innovative electric vehicle and battery technologies to power a better, more sustainable world.
Commercial and industrial fleets are expected to adopt electric vehicles at increasingly higher rates over the next two decades, driven by factors including emissions targets and regulations, and lower operating costs. More than 200,000 new electric buses, medium-duty trucks, and heavy-duty trucks are expected to be sold in the industry by 2030 and approximately 650,000 by 2040 in our core markets of North America and Europe. Assuming average battery capacity per vehicle of 225 kWh for medium-duty trucks, 300 kWh for buses and 750 kWh for heavy-duty trucks, we estimate this could translate into demand for heavy-duty commercial and industrial-scale batteries of approximately 90 GWh by 2030 and approximately 300 GWh by 2040 in such markets. Our business strategy is to capitalize on this opportunity through our industry-leading commercial electrification solutions. Additionally, to improve battery production efficiency, the Company will consolidate the battery production from Burlingame, California to Powered 1 battery factory in the third quarter of 2023. These changes are part of an overall operational efficiency effort by the Company to address the challenges we have faced related to improving our margins and increasing our cash flows. This is an ongoing process and our efforts to date have not yet fully addressed these challenges partially due to the slower than expected ramp of our Powered 1 battery factory.
In the first quarter of 2023, we announced workforce restructuring plans designed to improve operational efficiency with the reduction of our workforce by up to twenty five percent, or the elimination of approximately 300 jobs, and the planned closure of our City of Industry manufacturing facility by December 31, 2023.
We have the following commercial offerings each addressing a critical component of commercial vehicle electrification.
Proterra Powered & Energy. Proterra Powered products are our proprietary battery systems and electrification solutions for global commercial vehicle original equipment manufacturer (“OEM”) customers serving the Class 3 to Class 8 vehicle segments, including delivery trucks, school buses, and coach buses, as well as construction and mining equipment, and other applications. Proterra Energy products and services offer turnkey fleet-scale, high-power charging solutions and software services, ranging from fleet and energy management software-as-a-service, to fleet planning, hardware, infrastructure, installation, utility engagement, and charging optimization. These solutions are designed to optimize energy use and costs, and to provide vehicle-to-grid functionality.
Proterra Transit. We design, develop, manufacture, and sell electric transit buses as an OEM for North American public transit agencies, airports, universities, and other commercial transit fleets. Proterra Transit vehicles showcase and validate our electric vehicle technology platform through rigorous daily use by a large group of sophisticated customers focused on meeting the wide-ranging needs of the communities they serve.
Our industry experience, the performance of our transit buses, and compelling total cost of ownership has helped make us the leader in the U.S. electric transit bus market. With over 1,100 electric transit buses delivered since inception, our electric transit buses currently have delivered more than 45 million cumulative service miles
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spanning a wide spectrum of climates, conditions, altitudes and terrains. From this experience, we have been able to continue to iterate and improve our technology.
Our decade of experience supplying battery electric heavy duty transit buses has provided the opportunity to validate our products’ performance, operational efficiency and maintenance costs with a demanding customer base. Proterra Powered is able to leverage Proterra Transit’s expertise and showcase its strong record of range and reliability on North America’s most difficult public transit routes to attract other commercial vehicle segments. We believe our success powering heavy-duty transit vehicles with optimal performance and operation compared to a diesel-powered bus, will continue to demonstrate the strength and breadth of our technology to other commercial vehicle applications. We sell our battery systems and electrification solutions using a business development team as well as a channel sales team for certain end markets. These teams work closely with our engineering team to develop cutting-edge electrification solutions tailored to our customers’ vehicle requirements.
Proterra Powered has partnered with more than a dozen OEMs spanning from Class 3 to Class 8 trucks, several types of buses, and multiple off-highway categories. Through June 30, 2023, Proterra Powered has delivered battery systems and electrification solutions for more than 2,300 vehicles to our OEM partner customers.
In addition, Proterra Energy has established us as a leading commercial vehicle charging solution provider by helping fleet operators fulfill the high-power charging needs of commercial electric vehicles and optimize their energy usage, while meeting our customers’ space constraints and continuous service requirements. As of June 30, 2023, we had installed more than 110 MW of charging infrastructure across North America.
Historically, we have generated the majority of our revenue from Proterra Transit’s sales of electric transit buses, complemented by additional revenue from Proterra Powered’s sales of battery systems and Proterra Energy’s sales and installation of charging systems, as well as from the sale of spare parts and other services provided to customers. As fleet electrification continues to expand beyond buses to trucks and other commercial vehicles, we expect Proterra Powered & Proterra Energy to grow into a significantly larger portion of our overall business and generate a greater portion of revenue. In the second quarter of 2023, Proterra Powered generated a majority of our total revenue for the first time. Through June 30, 2023, our chief operating decision maker, the Chief Executive Officer, evaluates Proterra’s results on a consolidated basis for purposes of making decisions on allocating resources and assessing financial performance, resulting in a single reportable segment.
Enhanced by Proterra PoweredTM high performance battery systems and electrification solutions and our purpose-built transit bus vehicle designed to optimize power, weight, and efficiency, Proterra Transit has been a leader in the North American electric transit market since 2012. Our sales efforts are focused on the 400 largest public transit agencies, which range in size from approximately 50 buses to thousands of buses in their fleets. These agencies operate more than 85% of the more than 70,000 transit buses on the road in North America, according to the FTA’s National Transit Database. We also focus our sales effort on airports, universities, hospitals, and corporate shuttle operators. As of June 30, 2023, there are, in aggregate, more than 25,000 buses in operation at fleets that are mandated to convert to 100% zero-emission by 2040 in North America, including fleets in the state of California and the cities of New York City, Chicago, and Seattle, among others. The fleet size of our primary public transit agency customer targets ranges between approximately 100 to more than 4,000 buses, and their electrification plans typically involve a phased approach. Our goal is to maintain our leadership in market share of the North American electric bus and commercial vehicle market as electric penetration continues to rise by both acquiring new customers and expanding our share of existing customers as transit agencies’ average order rates increase to meet their zero emission targets. We believe we have a competitive advantage in winning new bus sales due to our extensive track record, with more than 1,100 vehicles delivered and more than 45 million real-world service miles spanning a wide spectrum of climates, conditions, altitudes and terrains. We believe that repeat orders of increasing scale represent a considerable growth opportunity for our electric transit buses. After initial purchase, our customers often expand their electric vehicle programs and place additional orders for electric buses and charging systems. Repeat orders lower our customer acquisition costs and increase visibility into our sales pipeline. Many of our existing customers have announced long-term goals to transition to fleets completely comprised of electric vehicles.
We have a long sales and production cycle given our customers’ structured procurement processes and vehicle customization requirements, and believe that our proven ability to deliver commercial-quality battery
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systems, electrification and charging solutions, and electric transit buses gives us a distinct first mover advantage in end markets that are electrifying rapidly. For Proterra Powered, new vehicle development programs for commercial vehicle OEMs typically last between one and three years. As a result, volume production and revenue generation tend to trail initial contract signatures by a few years. For Proterra Transit, public transit agencies typically conduct a request for proposal process before awards are made and purchase orders are issued. Proposals are evaluated on various criteria, including but not limited to technical requirements, reliability, reputation of the manufacturer, and price. This initial sales process from first engagement to award typically ranges from 6 to 18 months. Once a proposal has been awarded, a pre-production process is completed where customer specific options are mutually agreed upon. A final purchase order follows the pre-production process. Procurement of parts and production typically follow the purchase order. Once a bus is fully manufactured, the customer performs a final inspection before accepting delivery, allowing us to recognize revenue. The length of time between a customer award and vehicle acceptance typically varies between 12 and 24 months, depending on product availability and production capacity.
We consolidated our bus production to our largest bus manufacturing facility located in Greenville, South Carolina in the second quarter of 2023. We constructed our Powered 1 battery factory which has approximately 327,000 square feet at Greer, South Carolina. To improve production efficiency, we are also consolidating our battery production to Powered 1 battery factory in the second half of 2023. Our planned total battery system manufacturing capacity is multiple gigawatt-hours per year. We have specifically developed our battery modules using a design for manufacturability (DFM) approach that enables high-volume automated production of the module using a modular manufacturing line that can be rapidly built with low capital expenditures. Enabled by the simplicity of design and integrated architecture of our battery modules, we can manufacture our battery packs in two widths and three heights, various lengths ranging from 3-feet to 9-feet, and four different voltages. In the six months ended June 30, 2023 and 2022, our battery production was 297.9 MWh and 161.0 MWh, respectively, a 85% increase year over year. As we work to increase our production volumes, complete construction of our Powered 1 battery factory, and improve manufacturing efficiency across our production assets as we scale, we believe that we will be able to leverage our historical investments in capacity to reduce our labor and overhead costs as a percentage of total revenue. With the addition of our Powered 1 factory, we believe we will have sufficient capacity to fulfill our current backlog and anticipated near-term growth but further investment in capacity will be required as demand for electric vehicles continues to grow globally.
For the six months ended June 30, 2023 and 2022, our total revenue was $165.2 million and $133.1 million, respectively. We generated a gross loss of $18.9 million and $2.4 million for the six months ended June 30, 2023 and 2022, representing a gross margin of (11.5)% and (1.8)%, respectively. We invested significant resources in research and development, operations, and sales and marketing to grow our business and, as a result, generated losses from operations of $123.8 million and $89.2 million for the six months ended June 30, 2023 and 2022, respectively. The restructuring we announced in the first quarter of 2023 started in the later part of the first quarter, and therefore its impact was not significant to the operating results of the first quarter. In the second quarter of 2023, the costs reduction contributed to the offset of other incremental expenses incurred to grow our business and operate as a public company.
We intend to continue to make investments in developing new products and enhancing existing products. In 2022, we made a strategic equity investment in a privately held entity that we expect to produce lithium iron phosphate (LFP) battery cells in the United States in the coming years to provide us with development opportunities for battery packs with another cell chemistry to address additional segments of the commercial vehicle market. We are also increasing and/or optimizing our production capacity, and also expect to make investments in our sales and marketing organizations as well as those expenses associated with operating as a public company. As a result, we expect that the cost of goods sold and operating expenses will increase with total revenue in absolute dollars in future periods but decline as a percentage of total revenue over time.
Recent Developments
Voluntary Reorganization under Chapter 11
On August 7, 2023 (the “Petition Date”), Proterra Inc and its subsidiary, Proterra Operating Company, Inc (collectively, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the
44


District of Delaware (such court, the “Bankruptcy Court” and such cases, the “Cases”). The Cases are, pending an order authorizing joint administration by the Bankruptcy Court, currently administered under the captions In re Proterra Inc, Case No. 23-11120 (BLS) (Bankr. D. Del. 2023) and In re Proterra Operating Company, Inc., Case No. 23-11121 (BLS) (Bankr. D. Del. 2023), for the Company and Proterra Operating Company, Inc. respectively. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. To ensure their ability to continue operating in the ordinary course of business, the Debtors are seeking from the Bankruptcy Court a variety of “first-day” relief”, including, among other things, authority to use cash collateral, pay employee wages and benefits, pay vendors and suppliers in the ordinary course for all goods and services provided after the Petition Date and continue customer programs. As of August 8, 2023, the motions filed by the Debtors seeking this “first-day” relief are pending approval by the Bankruptcy Court on an interim or final basis, as applicable.
As previously disclosed by the Company, the filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the following debt instruments:
The Senior Credit Facility, which, as of June 30, 2023, has no outstanding balance and $20.1 million of letters of credit outstanding; and
The $175.9 million aggregate principal amount of Convertible Notes outstanding as of June 30, 2023.
The debt instruments set forth above provide that as a result of the Bankruptcy Petitions, the principal and interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the debt instruments set forth above are automatically stayed as a result of the Bankruptcy Petitions, and the creditors’ rights of enforcement in respect of the debt instruments set forth above are subject to the applicable provisions of the Bankruptcy Code.
NASDAQ Delisting Proceedings
As previously disclosed, on August 8, 2023, the Company received written notice from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that the Company’s Common Stock, $0.0001 par value per share (the “Common Stock”), will be delisted from the Nasdaq Global Select Market. The Company does not intend to appeal this determination.
Trading of the Company’s Common Stock will be suspended by Nasdaq at the opening of business on August 17, 2023.
Key metrics and select financial data
Deliveries
We delivered 62 and 97 (92 new and 5 pre-owned) vehicles in the six months ended June 30, 2023 and 2022, respectively. We delivered battery systems for 705 and 635 vehicles in the six months ended June 30, 2023 and 2022, respectively.
Deliveries is an indicator of our ability to convert awarded orders into revenue and demonstrates the scaling of our operations. We expect volume of deliveries to vary every quarter and not be linear as product configurations vary in complexity and timing for completion is not standard. Vehicles delivered represents the number of buses that have met revenue recognition criteria during a period. Battery systems delivered represents the battery systems sold to OEMs that have met revenue recognition criteria during a period and is measured based on the number of underlying vehicles in which they are to be used. In addition to batteries, battery systems could include drivetrains and high voltage systems and controls, depending upon the customer contract.
Growth rates between deliveries and total revenue are not perfectly correlated because our total revenue is affected by other variables, such as the mix of products delivered during the period or other services provided in addition to the hardware delivered.
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Key factors affecting our performance
Supply Chain Disruption, Material Costs and Economic Impacts
Ongoing macroeconomics conditions have led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand. The recent increase in inflation, interest rate and energy costs and continued disruption in global markets (in part stemming from the conflict in Ukraine) have further impacted supply chain stability and material costs. Our vehicle and charging system deliveries were impacted by ongoing constraints and inefficiencies in production driven in part by shortages in component parts resulting from global supply chain disruptions stemming from the pandemic and supplier instability. Although we achieved revenue growth during the six months ended June 30, 2023 compared to the six months ended June 30, 2022, these disruptions decreased our production which negatively impacted our revenue and increased our overhead, led to increased costs to secure components critical to our production needs and negatively impacted our margins. Our transit bus production in particular was impacted by availability of wiring harnesses and other parts shortages, and we have qualified additional suppliers for wiring harnesses in early 2023 to mitigate that issue going forward. However, we still expect that our results for the remaining 2023 across all of our product lines will continue to be impacted by supply chain issues, including parts shortages.
More generally, raw material and component price inflation, and increased freight and logistics costs in addition to parts shortages are currently expected to continue to have an impact on our results of operations, financial position, and liquidity. If supply chain disruptions, shipment delays, part shortages, production inefficiencies, extended customer order and acceptance processes, are prolonged or worsen, or if supplier credit terms are unfavorable as a result of our current financial condition or supplier to impose more onerous terms on us, such as requiring cash payments prior to parts delivery, it could lead to more significant delays in production, the signing of new customer contracts and customer acceptances of near-term deliveries.
Ability to sell additional powertrains, vehicles, chargers and other products to new and existing customers
Our results will be impacted by our ability to sell our battery systems, electrification solutions including charging and energy management software, and electric transit buses, to new and existing customers. We have had initial success with Proterra Powered establishing strategic partnerships and with Proterra Transit selling electric transit buses and chargers to transit agencies, universities and airports. Our growth opportunity is dependent on commercial vehicle manufacturers electrifying their product offerings and increasing production as well as transit agencies electrifying more of their fleets (both of which we believe will increase with continued improvement in battery performance and costs over time), as well as our ability to increase manufacturing capacity and secure supply of key components, including battery cells, to meet expected demand, and our reputation in the market. Our ability to sell additional products to existing customers is a key part of our success, as follow-on purchases indicate customer satisfaction and decrease the likelihood of competitive substitution. In order to sell additional products to new and existing customers, we will need to continue to invest significant resources in our products and services, and our manufacturing capacity and supply chain, and demonstrate our reliability as a partner both in terms of our financial condition and product quality and customer service. If we fail to make the right investment decisions in our technology and electrification solutions, including our battery systems and electrification and charging solutions, and our manufacturing facilities and supply chain initiatives, if customers do not adopt our technology or our products and services or we cannot timely deliver products to customers due to supply chain disruptions or otherwise, or if our competitors are able to develop and deliver technology or products and services that are superior to ours, our business, prospects, financial condition, and operating results could be adversely affected.
Ability to improve profit margins and scale our business
We intend to continue investing in initiatives to improve our operating leverage and significantly ramp production. We believe continued reduction in costs and an increase in production volumes will enable commercial vehicle manufacturers to electrify faster. Purchased materials represent the largest component of cost of goods sold in all products and we continue to explore ways to reduce these costs through improved design for cost, strategic sourcing, long-term contracts, and in some cases vertical integration. We completed construction of our battery production facility in Greer including the first production line which went in service in January 2023. We
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consolidated our bus manufacturing in our Greenville facility in the second quarter of 2023, and are in the process of consolidating all battery production to Greer facility, which we expect to complete in the second half of 2023. We expect the consolidation of bus production in Greenville to continue to drive greater labor and overhead efficiencies while maintaining the equivalent volume of output. We believe that an increase in volume and additional experience will allow us to leverage those investments and reduce our labor and overhead costs, as well as our freight costs, as a percentage of total revenue. We expect our product cost of goods sold to increase in absolute dollars in future periods as the volume of products we sell increases. As we grow into our current capacity, execute on cost-reduction initiatives, and improve production efficiency, we expect our product cost of goods sold as a percentage of revenue to decrease in the longer term. We anticipate that by increasing facility utilization rates and improving overall economies of scale, we can positively impact gross margins of our products, bring value to our customers and help accelerate commercial electric vehicle adoption. Our ability to achieve cost-saving and production-efficiency objectives can be negatively impacted by a variety of factors including, among other things, labor cost inflation, lower-than-expected facility utilization rates, rising real estate costs, manufacturing and production cost overruns, increased purchased material costs, and unexpected supply-chain quality issues or interruptions, and delays in our ability to hire, train, and retain employees needed to scale production to meet demand.
Continued emissions regulation and environmental stewardship
Our business benefits from international, federal, state, and local government interest in regulating air pollution and greenhouse gas emissions that contribute to global climate change. In July 2020, 15 states, including California and New York, pledged to work jointly towards a unified goal of zero emissions for 100% of new sales of medium- and heavy-duty commercial vehicles by 2050. In August 2019, the European Union passed Regulation 2019/1242, mandating a reduction in emissions from new trucks by 2025 and 2030. In addition, a growing number of cities and transit agencies have pledged to convert their entire transit bus fleets to zero-emission vehicles by a specific target date, and many have already begun to purchase electric vehicles in order to meet this goal. For example, on December 14, 2018, the California Air Resources Board (“CARB’) adopted a state-wide mandate, the Innovative Clean Transit Rule, mandating transit agencies to commit to purchasing zero-emission buses starting in 2029. In 2023, CARB passed the Advanced Clean Fleet Rule, which requires public and private medium-duty fleets in California to convert to zero-emission vehicles by 2045, with some sectors as early as 2035. The move away from diesel- and natural gas-powered commercial vehicles is a significant step forward to accelerate the use of advanced technologies in medium- and heavy-duty vehicles to meet air quality and public health goals, thereby boosting near-term deployment of battery-electric commercial vehicles. As legacy internal combustion engine technology becomes more heavily regulated and costly across the globe, commercial vehicle manufacturers are investing in electrification. While this investment may increase competition, we believe that it will also increase customer demand, and help build the necessary supply chain and adjacent industry investments to support powertrain electrification. However, the uncertainty related to the passage of new legislation, appropriation of government funding, and implementation of regulations could impact the timing and number of vehicle orders, and any reduction in governmental interest in emissions regulation could negatively impact our business prospects or operating results.
Government programs accelerating adoption of zero-emission vehicles
Federal and state funding has accelerated the adoption of electric vehicles in our target markets. For instance, our U.S. transit customers have partially funded electric bus purchases through competitive grant programs, including the Low or No Emission Vehicle Program authorized by the federal Fixing America’s Surface Transportation Act in 2015, and other state-specific funding. The Infrastructure Investment and Jobs Act enacted on November 15, 2021 authorizes additional funding for electric vehicles and electric vehicle charging infrastructure through the creation of new programs and grants and the expansion of existing programs, including over $4.0 billion to replace existing buses with zero emission buses and at least $2.5 billion to replace existing school buses with zero emission school buses. In August 2022, the Inflation Reduction Act added additional funding and tax credit programs for both passenger car and commercial vehicles, many of which will become available to recipients in 2023. In the United States, states are also allocating portions of settlement funds from the approximately $15 billion Volkswagen Emissions Settlement Program to investments in zero-emission transit buses and school buses. We expect that the availability of this now unprecedented level of government funding for our customers, suppliers, and competitors to help fund purchases of commercial electric vehicles and battery systems will remain an important factor in our company’s growth prospects.
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As a result of the Inflation Reduction Act, the Internal Revenue Code Section 45X introduces “Advanced Manufacturing Production Credit” (“AMPC”) in effective January 1, 2023. The AMPC is based on the quantity of eligible components produced and sold by a taxpayer to an unrelated person in the taxable year. The AMPC is available for the production of battery cells and battery modules in the United States based on the capacity in kilowatt hours of the battery cell or module. The credit in the case of a battery cell is based on the capacity of the cell, $35 per kWh, and in the case of a module is based on the capacity of the module, $10 per kWh (or, in the case of a battery module that does not use battery cells, $45 per kWh). The credit is available from 2023 to 2032 subject to phase down beginning in 2030. The credit is eligible for direct payment for a five-year period from Treasury and the right to the credit can be sold for cash to third parties (in both cases subject to certain limitations). Based on the direct pay mechanism, it allows taxpayers to elect to treat the credit as a direct payment of tax, which allows them to receive a cash payment if the taxpayer does not incur any income tax liability. Accordingly, these tax credits are government grants in nature. As such, we follow our accounting policy related to government grants and record it as a reduction of product cost of goods sold when we are reasonably assured that the conditions required for such tax credits are met and such benefit will be received. We expect that we will qualify for the $10 per kWh credit, however, we cannot assure that the IRS will ultimately determine that we qualify.
Components of results of operations
Revenue
We derive revenue primarily from the sale of vehicles, the sale of battery and powertrain systems, the sale and installation of charging systems, as well as the sale of spare parts and other services provided to customers.
Product revenue.    Product revenue consists of revenue earned from the sale of vehicles, sale of battery and powertrain systems as well as sales and installation of charging systems. A vehicle is considered delivered once met revenue recognition criteria. Revenue from sales of vehicles and charging systems is typically recognized upon delivery when we can objectively demonstrate that the criteria specified in the contractual acceptance provisions are achieved prior to delivery. In cases, where we cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue is recognized upon acceptance by the customer. Under certain contract arrangements, revenue related to the charging systems is recognized over the installation period using an input measure based on costs incurred to date relative to total estimated costs to completion. Revenue from the sale of battery and powertrain systems is typically recognized upon shipping. Product revenue also includes revenue from leasing vehicles and charging systems under operating leases. Revenue from operating lease arrangements is recognized ratably over the lease term. The amount of product revenue we recognize in a given period depends on the number of products delivered and the type of financing used by the customer.
Parts and other service revenue.    Parts and other service revenue includes sales of spare parts, revenue earned from the development of electric vehicle powertrain components, the design and development of battery and drive systems for other vehicle manufacturers, and sales of extended warranties. The amount of parts and service revenue tends to grow with the number of vehicles delivered. However, variability can exist as customers have different methodologies for sourcing spare parts for their fleets. Revenue related to the design, development and integration of battery and drive systems is typically recognized upon shipping or delivery of services and prototypes, depending on the terms in customer contracts.
Cost of goods sold
Product cost of goods sold.    Product cost of goods sold consists primarily of direct material and labor costs, manufacturing overhead, other personnel-related expenses, which include salaries, bonuses, benefits, and stock-based compensation expense, reserves for estimated warranty costs, freight expense, and depreciation expense. Product cost of goods sold also includes charges to write-down the carrying value of inventory when it exceeds its estimated net realizable value, including on-hand inventory that is either obsolete or in excess of forecasted demand. We expect our product cost of goods sold to increase in absolute dollars in future periods as the volume of products we sell increases. As we grow into our current capacity, execute on cost-reduction initiatives, and improve production efficiency, we expect our product cost of goods sold as a percentage of revenue to decrease in the longer term.
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Parts and other service cost of goods sold.    Parts and other service cost of goods sold consists primarily of material costs and the cost of services provided, including field service costs and costs related to our development team. We record costs of development services incurred in periods prior to the finalization of an agreement as research and development expense. Once a development agreement is finalized, we record these costs in parts and other service cost of goods sold. We expect our parts and other service cost of goods sold to increase in absolute dollars in future periods as more customers put additional vehicles into service and sign new development agreements.
Gross profit (loss) and margin
Gross profit (loss) is total revenue less total cost of goods sold. Gross margin is gross profit (loss) expressed as a percentage of total revenue. Our gross profit (loss) and margin has and may in the future fluctuate from period-to-period. Such fluctuations have been and will continue to be affected by a variety of factors, including the timing of vehicle delivery, mix of products sold, manufacturing costs, financing options, and warranty costs. We expect our gross margin to improve over time as we continue to scale our operations and execute on cost reduction initiatives in the longer term.
Operating expenses
Research and development.    Research and development expense consists primarily of personnel-related expenses, consulting and contractor expenses, validation and testing expense, prototype parts and materials, depreciation expense, and allocated overhead costs. Software development costs related to our fleet and energy management platform are expensed as incurred if the capitalization criteria are not met. We intend to continue to make significant investments in developing new products and enhancing existing products. Research and development expense will be variable relative to the number of products that are in development, validation or testing. However, we expect it to decline as a percentage of total revenue over time.
Selling, general and administrative.    Selling, general and administrative expenses consist primarily of personnel-related expenses for our sales, marketing, supply chain, finance, legal, human resources, and administrative personnel, as well as the costs of customer service, information technology, professional services, insurance, travel, allocated overhead, and other marketing, communications and administrative expenses. We will continue to actively promote our products. We also expect to invest in our corporate organization and incur additional expenses associated with operating as a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums, and compliance costs. As a result, we expect that selling, general and administrative expenses will increase in absolute dollars in future periods but decline as a percentage of total revenue over time.
Interest expense, net
Interest expense, net consists primarily of interest expense associated with our debt facilities and amortization of debt discount and issuance costs. Interest income consists primarily of interest income earned on our cash and cash equivalents and short-term investments balances.
(Gain) loss on debt extinguishment
Loss on debt extinguishment relates to the amendment made to the Notes Purchase Agreement and Convertible Notes on March 31, 2023. See Note 4, Debt, for additional information of the Convertible Notes. Gain on debt extinguishment relates to the forgiveness of the PPP loan.
(Gain) loss on valuation of derivative liability
(Gain) loss on valuation of derivative liability relates to the changes in the fair value of derivative liability, which were subject to remeasurement at each balance sheet date.
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Other expense (income), net
Other expense (income), net primarily relates to sublease income and currency fluctuations that generate foreign exchange gains or losses on invoices denominated in currencies other than the U.S. dollar, amortization of short-term investment premium/discount and other non-operational financial gains or losses.
Critical accounting policies and estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions, and judgments that affect amounts of assets and liabilities reported in the financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the applicable periods. We base our estimates, assumptions, and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our financial statements, which, in turn, could change the results from those reported. We evaluate our estimates, assumptions, and judgments on an ongoing basis.
There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2023, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022, except for the accounting policies related to the Convertible Notes and derivative liability adopted during the three months ended March 31, 2023. See Note 1 and Note 4 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for details.
Recent accounting pronouncements
See Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for information regarding recent accounting pronouncements that are of significance or potential significance to us.
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Results of operations
The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. Percentages presented in the following tables may not sum due to rounding.
Three Months Ended June 30, Six Months Ended June 30,
(in thousands)2023202220232022
Product revenue
$77,103 $70,256 $147,099 $124,427 
Parts and other service revenue
8,611 4,308 18,144 8,718 
Total revenue
85,714 74,564 165,243 133,145 
Product cost of goods sold
92,390 69,109 171,441 126,335 
Parts and other service cost of goods sold
5,711 4,900 12,747 9,258 
Total cost of goods sold (1)
98,101 74,009 184,188 135,593 
Gross profit (loss)
(12,387)555 (18,945)(2,448)
Research and development (1)
14,922 14,904 33,446 26,706 
Selling, general and administrative (1)
35,562 31,705 71,448 60,092 
Total operating expenses
50,484 46,609 104,894 86,798 
Loss from operations
(62,871)(46,054)(123,839)(89,246)
Interest expense, net
3,938 6,951 11,192 13,830 
(Gain) loss on debt extinguishment— (10,201)177,939 (10,201)
Gain on valuation of derivative liability
(33,578)— (33,578)— 
Other expense (income), net
(2,237)(983)(4,421)(976)
Loss before income taxes
(30,994)(41,821)(274,971)(91,899)
Provision for income taxes
— — — — 
Net loss
$(30,994)$(41,821)$(274,971)$(91,899)
__________________
(1)Includes stock-based compensation as follows:
Three Months Ended June 30, Six Months Ended June 30,
(in thousands)2023202220232022
Cost of goods sold
$272 $378 $577 $894 
Research and development
1,265 1,288 2,457 2,281 
Selling, general and administrative
2,868 4,649 5,685 7,782 
Total stock-based compensation expense
$4,405 $6,315 $8,719 $10,957 
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Three Months Ended June 30, Six Months Ended June 30,
2023202220232022
Product revenue
90 %94 %89 %93 %
Parts and other service revenue
10 11 
Total revenue
100 100 100 100 
Product cost of goods sold
108 93 104 95 
Parts and other service cost of goods sold
Total cost of goods sold (1)
115 99 112 102 
Gross profit (loss)
(15)(12)(2)
Research and development (1)
17 20 20 20 
Selling, general and administrative (1)
41 43 43 45 
Total operating expenses
58 63 63 65 
Loss from operations
(73)(62)(75)(67)
Interest expense, net
10 
(Gain) loss on debt extinguishment— (14)108 (8)
Gain on valuation of derivative liability
(39)— (20)— 
Other expense (income), net
(3)(1)(3)(1)
Loss before income taxes
(36)(56)(167)(68)
Provision for income taxes
— — — — 
Net loss
(36)%(56)%(167)%(68)%
__________________
(1)Includes stock-based compensation expense as follows:
Three Months Ended June 30, Six Months Ended June 30,
2023202220232022
Cost of goods sold
— %— %— %— %
Research and development
Selling, general and administrative
Total stock-based compensation expense
%%%%
Comparison of the Three and Six Months Ended June 30, 2023 and 2022
Revenue
Three Months Ended June 30, $%Six Months Ended June 30, $%
(dollars in thousands)20232022ChangeChange20232022ChangeChange
Product revenue
$77,103 $70,256 $6,847 10 %$147,099 $124,427 $22,672 18 %
Parts and other service revenue
8,611 4,308 4,303 100 18,144 8,718 9,426 108 
Total revenue
$85,714 $74,564 $11,150 15 $165,243 $133,145 $32,098 24 
Proterra Transit new buses delivered20 52 (32)(62)62 92 (30)(33)
Proterra Powered battery systems delivered462 348 114 33 705 635 70 11 
MW charging infrastructure installed8.8 3.0 5.8 193 %17.8 6.3 11.5 183 %
Total revenue increased by $11.2 million in the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase of total revenue was primarily due to an increase of battery systems delivered partially offset by fewer bus deliveries.
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Total revenue increased by $32.1 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase of total revenue was primarily due to an increase of battery systems delivered partially offset by fewer bus deliveries.
The decrease of vehicle delivery in the three and six months ended June 30, 2023 was mainly due to the timing of bus deliveries at the end of the period and a reduction in bus production as we consolidated all of our bus manufacturing to Greenville, South Carolina.
Cost of goods sold and gross profit (loss)
Three Months Ended June 30, $%Six Months Ended June 30, $%
(dollars in thousands)20232022ChangeChange20232022ChangeChange
Product cost of goods sold
$92,390 $69,109 $23,281 34 %$171,441 $126,335 $45,106 36 %
Parts and other service cost of goods sold
5,711 4,900 811 17 12,747 9,258 3,489 38 
Total cost of goods sold
98,101 74,009 24,092 33 184,188 135,593 48,595 36 
Gross profit (loss)
$(12,387)$555 $(12,942)(2332)%$(18,945)$(2,448)$(16,497)674 %
Cost of goods sold increased by $24.1 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase in costs were mainly driven by the increased volume and higher material input costs. The increase was also due to a $6.8 million inventory write down related to excess or obsolete inventories and lower of cost or market adjustment, and increased personnel expense, depreciation and facility expenses associated with Powered 1 factory, which started production in the first quarter of 2023. These costs were partially offset by manufacturing credits earned as part of the Inflation Reduction Act (the “IRA”) in 2023.
Cost of goods sold increased by $48.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase in costs were mainly driven by the increased volume and higher material input costs and growth in personnel related costs. However, delays in production resulting mainly from parts shortages and supplier instability along with the ramp up Powered 1 factory production, which started in the first quarter of 2023, negatively impacted our ability to absorb increased labor and manufacturing overhead costs in the first quarter of 2023. The increase was also due to the $6.8 million inventory write down, and increased personnel expense, depreciation and facility expenses associated with Powered 1 factory, which started production in the first quarter of 2023. These costs were partially offset by manufacturing credits earned as part of the IRA during the six months ended June 30, 2023.
Gross profit decreased by $12.9 million to a gross loss of $12.4 million in the three months ended June 30, 2023 from a gross profit of $0.6 million in the three months ended June 30, 2022. Gross loss increased by $16.5 million to $18.9 million in the six months ended June 30, 2023 from $2.4 million in the six months ended June 30, 2022. Gross profit was negatively impacted primarily due to a high mix of deliveries with pre-inflation pricing and increased cost of goods sold due to volume and higher material input costs, the $6.8 million inventory write down, and increased personnel related costs depreciation and facility expenses associated with Powered 1 factory, which started production in the first quarter of 2023. For the six months ended June 30, 2023, the gross profit was also negatively impacted by the unabsorbed labor and manufacturing overhead costs caused by delays in production and supply chain interruptions along with the ramp up Powered 1 factory production in the first quarter of 2023.
Gross profit for the six months ended June 30, 2022 was negatively impacted primarily due to unabsorbed labor and manufacturing overhead costs caused by the COVID-19 pandemic and related supply chain interruptions and delays in production.
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Operating expenses
Research and development
Three Months Ended June 30, $%Six Months Ended June 30, $%
(dollars in thousands)20232022ChangeChange20232022ChangeChange
Research and development
$14,922 $14,904 $18 — %$33,446 $26,706 $6,740 25 %
Research and development expense only slightly changed for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to the increase in prototype parts and tooling expense offset by a decrease in personnel related expense and regulatory testing expense.
Research and development expense increased by $6.7 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to an increase in personnel related expenses and stock-based compensation of $3.6 million, an increase in prototype parts and tooling expenses of $1.7 million, and an increase of professional and consulting fees of $1.0 million to support increased product and market development efforts.
Selling, general and administrative
Three Months Ended June 30, $%Six Months Ended June 30, $%
(dollars in thousands)20232022ChangeChange20232022ChangeChange
Selling, general and administrative
$35,562 $31,705 $3,857 12 %$71,448 $60,092 $11,356 19 %
Selling, general and administrative expense increased by $3.9 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The $3.9 million increase was primarily due to an increase in professional and consulting fees of $4.7 million due to the growth of our business and operating as a public company.
Selling, general and administrative expense increased by $11.4 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The $11.4 million increase was primarily due to an increase in personnel related expenses and stock-based compensation of $4.1 million, an increase in professional and consulting fees of $7.5 million due to the growth of our business and operating as a public company.
Interest expense, net
Three Months Ended June 30, $%Six Months Ended June 30, $%
(dollars in thousands)20232022ChangeChange20232022ChangeChange
Interest income
$(1,125)$(458)$(667)146 %$(1,849)$(767)$(1,082)141 %
Interest expense
5,063 7,409 (2,346)(32)13,041 14,597 (1,556)(11)
Interest expense, net
$3,938 $6,951 $(3,013)(43)%$11,192 $13,830 $(2,638)