Filed pursuant to Rule 424(b)(3)
Registration No. 333-257496

PROSPECTUS SUPPLEMENT NO. 2
(to Prospectus dated July 9, 2021)
IMAGE_0.JPG
Proterra Inc
168,719,124 Shares of Common Stock
7,550,000 Warrants to Purchase Shares of Common Stock
50,366,550 Shares of Common Stock Underlying Warrants and Convertible Notes
____________________
This prospectus supplement supplements the prospectus dated July 9, 2021, as supplemented by Prospectus Supplement No. 1, dated August 11, 2021 (the “Prospectus”), which forms a part of our registration statement on Form S-1 (No. 333-257496). 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 period ended June 30, 2021, filed with the Securities and Exchange Commission on August 13, 2021 (the “Q2 2021 Quarterly Report”). Accordingly, we have attached the Q2 2021 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 (A) up to 168,719,124 shares of common stock, par value $0.0001 per share (“common stock”), consisting of (i) up to 41,500,000 shares of common stock issued in a private placement pursuant to subscription agreements entered into on January 11, 2021; (ii) up to 6,797,072 shares of common stock issued in connection with the consummation of the Business Combination (as defined in the Prospectus), in exchange for shares of our Class B ordinary shares originally issued in a private placement to ArcLight CTC Holdings, L.P. (the “Sponsor”); (iii) up to 112,872,052 shares of common stock issued or issuable to certain former stockholders and other security holders of Proterra (the “Proterra Holders”) in connection with or as a result of the consummation of the Business Combination, consisting of (a) up to 60,006,701 shares of common stock; (b) up to 25,437,033 shares of common stock (the “Note Shares”) issuable upon the conversion of outstanding convertible promissory notes (the “Convertible Notes”); (c) up to 3,504,523 shares of common stock issuable upon the exercise of certain warrants (the “Proterra warrants”); (d) 11,111,287 shares of common stock issuable upon the exercise of certain equity awards; and (e) up to 12,895,129 shares of common stock that certain Proterra Holders have the contingent right to receive upon the achievement of certain stock price-based vesting conditions; and (iv) up to 7,550,000 shares of common stock issuable upon the exercise of the private placement warrants (as defined below); and (B) up to 7,550,000 warrants (the “private placement warrants”) issued in connection with the consummation of the Business Combination, in exchange for warrants originally issued in a private placement to the Sponsor.
In addition, the Prospectus and this prospectus supplement relate to the offer and sale of up to 13,874,994 shares of common stock that are issuable by us upon the exercise of 13,874,994 warrants (the “public warrants”) that were previously registered. Additionally, the Prospectus and this prospectus supplement relates to the offer and sale of (i) up to 3,504,523 shares of common stock issuable by us upon exercise of the Proterra warrants that were previously registered, (ii) up to



7,550,000 shares of common stock issuable by us upon exercise of the private placement warrants that were previously registered, and (iii) up to 25,437,033 Note Shares issuable by us upon conversion of the Convertible Notes, certain of which were previously registered.
Our common stock and public warrants are listed on the Nasdaq Global Select Market (the “Nasdaq”) under the symbols “PTRA” and “PTRAW,” respectively. On August 12, 2021, the last reported sales price of our common stock was $11.08 per share and the last reported sales price of our public warrants was $3.60 per warrant.
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 securities involves risks. See the section entitled “Risk Factors” beginning on page 8 of the Prospectus to read about factors you should consider before buying our securities.
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 13, 2021




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

OR

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

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

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





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

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

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

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


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






TABLE OF CONTENTS
3


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


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


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


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


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

8


Item 1. Financial Statements
PROTERRA INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, 2021 December 31, 2020
(Unaudited) (Note 1)
Assets:
Cash and cash equivalents $ 634,836  $ 110,719 
Accounts receivable, net 65,041  51,716 
Short-term investments 126,693  68,990 
Inventory 95,377  92,330 
Prepaid expenses and other current assets 9,024  7,455 
Deferred cost of goods sold 1,159  2,037 
Restricted cash, current 10,890  8,397 
Total current assets 943,020  341,644 
Property, plant, and equipment, net 49,389  53,587 
Operating lease right-of-use assets
10,113  10,310 
Restricted cash, non-current 1,675  4,581 
Other assets 5,921  4,789 
Total assets $ 1,010,118  $ 414,911 
Liabilities and Stockholders’ Equity:
Accounts payable $ 32,730  $ 25,074 
Accrued liabilities 24,494  19,736 
Deferred revenue, current 15,174  16,015 
Operating lease liabilities, current 3,735  3,153 
Debt, current 10,000  — 
Total current liabilities 86,133  63,978 
Debt, non-current 90,933  133,252 
Derivative liability —  70,870 
Warrant liability 129,330  39,670 
Deferred revenue, non-current 17,208  12,206 
Operating lease liabilities, non-current 7,058  7,891 
Other long-term liabilities 13,512  12,578 
Total liabilities 344,174  340,445 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Convertible preferred stock, $0.0001 par value; zero shares authorized, zero shares issued and outstanding as of June 30, 2021 (unaudited), 115,644 shares authorized and 115,136 shares issued and outstanding as of December 31, 2020; liquidation preference zero as of June 30, 2021 (unaudited) and $631.3 million as of December 31, 2020
—  13 
Common stock, $0.0001 par value; 500,000 shares authorized and 207,621 shares issued and outstanding as of June 30, 2021 (unaudited); 156,277 shares authorized and 5,678 shares issued and outstanding as of December 31, 2020
21 
Preferred stock, $0.0001 par value; 10,000 shares authorized and zero shares issued and outstanding as of June 30, 2021 (unaudited); zero shares authorized, zero shares issued and outstanding as of December 31, 2020
—  — 
Additional paid-in capital
1,515,331  682,671 
Accumulated deficit
(849,408) (608,219)
Total stockholders’ equity
665,944  74,466 
Total liabilities and stockholders’ equity
$ 1,010,118  $ 414,911 
See accompanying notes to unaudited condensed consolidated financial statements.
9


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Product revenue $ 56,072  $ 40,448  $ 107,494  $ 91,111 
Parts and other service revenue 2,430  1,612  5,014  4,148 
Total revenue 58,502  42,060  112,508  95,259 
Product cost of goods sold 54,948  38,327  105,479  86,556 
Parts and other service cost of goods sold 2,241  1,391  4,845  4,183 
Total cost of goods sold 57,189  39,718  110,324  90,739 
Gross profit 1,313  2,342  2,184  4,520 
Research and development 10,315  8,300  20,015  16,904 
Selling, general and administrative 20,744  15,494  39,204  31,925 
Total operating expenses 31,059  23,794  59,219  48,829 
Loss from operations (29,746) (21,452) (57,035) (44,309)
Interest expense, net 29,129  727  37,926  1,366 
Loss on valuation of derivative and warrant liabilities 129,789  —  146,110  — 
Other expense, net 363  520  118  1,849 
Loss before income taxes (189,027) (22,699) (241,189) (47,524)
Provision for income taxes —  —  —  — 
Net loss $ (189,027) $ (22,699) $ (241,189) $ (47,524)
Net loss per share of common stock, basic and diluted $ (4.24) $ (5.59) $ (9.49) $ (11.87)
Shares used in computing net loss per share of common stock, basic and diluted 44,571  4,064  25,403  4,004 
See accompanying notes to unaudited condensed consolidated financial statements.
10


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


PROTERRA INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
2021 2020
Cash flows from operating activities:
Net loss $ (241,189) $ (47,524)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 7,737  7,797 
Loss on disposal of fixed assets
137  (6)
Stock-based compensation 8,087  4,871 
Amortization of debt discount and issuance costs 28,346  172 
Accretion of debt end of term charge and PIK interest 4,564  90 
Loss on valuation of derivative and warrant liabilities 146,110  — 
Others 384  (123)
Changes in operating assets and liabilities:
Accounts receivable (13,325) 19,276 
Inventory (2,582) (2,356)
Prepaid expenses and other current assets (1,500) (6,547)
Deferred cost of goods sold 878  (739)
Operating lease right-of-use assets and liabilities (55) 85 
Other assets (984) 979 
Accounts payable and accrued liabilities 11,397  83 
Deferred revenue, current and non-current 4,161  2,030 
Other non-current liabilities 949  2,828 
Net cash used in operating activities (46,885) (19,084)
Cash flows from investing activities
Purchase of investments (137,087) — 
Proceeds from maturities of investments 79,000  40,000 
Purchase of property and equipment (5,321) (13,137)
Net cash provided by (used in) investing activities (63,408) 26,863 
Cash flows from financing activities:
Proceeds from reverse recapitalization, net of transaction costs 646,441  — 
Proceeds from debt, net of issuance costs —  20,424 
Repayment of debt and prepayment penalty
(17,083) (12,787)
Repayment of finance obligation (242) (244)
Proceeds from government grants 1,079  275 
Proceeds from exercise of stock options 3,802  698 
Net cash provided by financing activities 633,997  8,366 
Net increase in cash and cash equivalents, and restricted cash 523,704  16,145 
Cash and cash equivalents, and restricted cash at the beginning of period 123,697  53,649 
Cash and cash equivalents, and restricted cash at the end of period $ 647,401  $ 69,794 
Supplemental disclosures of cash flow information:
Cash paid for interest $ 4,853  $ 1,044 
Cash paid for income taxes —  — 
Non-cash investing and financing activity:
Assets acquired through accounts payable and accrued liabilities $ 947  $ 5,558 
Non-cash transfer of leased assets to inventory 465  635 
 Reclassification of Convertible Notes warrants liability upon exercise 17,696  — 
 Conversion of Convertible Notes into common stock 48,607  — 
 Reclassification of remaining Convertible Notes warrants liability upon the reverse recapitalization 69,320  — 
 Reclassification of derivative liability upon the reverse recapitalization 182,554  — 
Conversion of convertible preferred stock into common stock 627,315  — 
See accompanying notes to unaudited condensed consolidated financial statements.

12

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.    Summary of Significant Accounting Policies
Organization and Description of Business
Proterra Inc (“Proterra”), formerly known as ArcLight Clean Transition Corp. (“ArcLight”), is a leading developer and producer of electric vehicle technology for commercial applications. Proterra designs, develops, manufactures, and sells electric transit buses as an original equipment manufacturer for North American public transit agencies, airports, universities, and other commercial transit fleets. It also designs, develops, manufactures, sells, and integrates proprietary battery systems and electrification solutions for global commercial vehicle manufacturers. Additionally, Proterra provides fleet-scale, high-power charging infrastructure solutions for its customers.
On June 11, 2021, ArcLight filed a notice of deregistration with the Cayman Islands Registrar of Companies, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which ArcLight was domesticated and continued as a Delaware corporation. On June 14, 2021 (the “Closing Date”), ArcLight consummated a merger with Phoenix Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of ArcLight (“Phoenix Merger Sub”), and Proterra Inc, a Delaware corporation (“Legacy Proterra”) with Legacy Proterra surviving as the surviving company and as a wholly-owned subsidiary of ArcLight (the “Merger” and, collectively with the other transactions described in the Agreement and Plan of Merger (the “Merger Agreement”), the “Business Combination”). In connection with the Business Combination, Legacy Proterra changed its name to “Proterra Operating Company, Inc.” and ArcLight changed its name to “Proterra Inc”.
The Merger was accounted for as a reverse merger and a recapitalization with Legacy Proterra being the accounting acquirer. Accordingly, all historical financial information presented in the unaudited condensed consolidated financial statements of Proterra represents the accounts of Legacy Proterra and its wholly owned subsidiaries as if Legacy Proterra is the predecessor to Proterra. The shares and net loss per common share, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Merger (0.8925 shares of Legacy Proterra common stock for 1 share of Proterra common stock) (the “Exchange Ratio”). Unless otherwise specified or unless the context otherwise requires, references in these notes to the “Company” refer to Legacy Proterra prior to the Business Combination and to Proterra following the Business Combination.
Prior to the closing of the Business Combination (the “Closing”), ArcLight’s Class A ordinary shares and public warrants were listed on the Nasdaq Capital Market under the symbols “ACTC” and “ACTCW,” respectively. Proterra’s common stock and public warrants are currently listed on the Nasdaq Global Select Market under the symbols “PTRA” and “PTRAW,” respectively. Please refer to Note 3 “Reverse Recapitalization” for further details of the Merger.
The Company has incurred net losses and negative cash flows from operations since inception. As of June 30, 2021, the Company has an accumulated deficit of $849.4 million. The Company has $761.5 million of cash and cash equivalents and short-term investments as of June 30, 2021. The Company has funded operations primarily through a combination of equity and debt financing. Management believes that the Company’s currently available resources will be sufficient to fund its cash requirements for at least the next twelve months.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020 and the related notes incorporated by referenced in the Company’s Current Report on Form 8-K, filed with SEC on June 17, 2021, which provides a more complete discussion of the Company’s accounting policies and certain other information. The information as of December 31, 2020 and 2019 was derived from the Company’s audited financial statements. The condensed consolidated financial statements were prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for a fair
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
statement of the Company’s financial position as of June 30, 2021 and the results of operations and cash flows for the three and six months ended June 30, 2021 and 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
There have been no changes to the Company’s significant accounting policies described in the annual financial statements for the year ended December 31, 2020, except for the new accounting policies adopted during the three months ended June 30, 2021 related to public warrants and private placement warrants described below, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.
The Company has not experienced any significant impact to estimates or assumptions as a result of the COVID-19 pandemic. However, there have been some impacts, specifically as it relates to parts, logistics and overall transit order timing. The Company will continue to monitor impacts of the pandemic on an ongoing basis. While the COVID-19 pandemic has not had a material adverse impact on the Company’s financial condition and results of operations to date, the future impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on certain developments, including the duration of the pandemic and spread of COVID-19 (including the variant strains of the virus), impact on the Company’s customers and effect on the Company’s suppliers, all of which are uncertain and cannot be predicted.
Segments
The Company operates in the United States and has sales to the European Union, Canada, Australia and Japan. The revenue generated outside of the United States was approximately 11% of total revenue or $6.6 million in the three months ended June 30, 2021, and was approximately 39% of total revenue or $16.5 million in the three months ended June 30, 2020. The revenue generated outside of the United States was approximately 7% of total revenue or $8.0 million in the six months ended June 30, 2021, and was approximately 35% of total revenue or $33.4 million in the six months ended June 30, 2020. The revenue generated outside of the United States in 2020 was mainly from sales to customers in Canada.
The Company’s chief operating decision maker is its Chief Executive Officer (CEO), who reviews financial information presented at the entity level. Accordingly, the Company has determined that it has a single reportable segment.
Foreign Currency Transactions
Net gains or losses resulting from foreign exchange transactions were not material for all periods presented.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for credit losses based on historical write-off experience, an analysis of the aging of outstanding receivables, customer payment patterns and expectations of changes in macroeconomic conditions that may affect the collectability of outstanding receivables. The allowance for credit losses was not material as of June 30, 2021 and December 31, 2020.
Short-Term Investments
The Company’s primary objectives for investment activities are to preserve principal, provide liquidity, and maximize income without significantly increasing risk. The Company’s short-term investments were primarily comprised of U.S. Treasury securities, and classified as available-for-sale at the time of purchase because it is intended that these investments are available for current operations. Investments with maturities of one year or less from the balance sheet date are classified as short-term investments.
Investments are reported at fair value and are subject to periodic impairment review. Unrealized gains and losses related to changes in the fair value of these securities will be recognized in accumulated other comprehensive loss. The ultimate value realized on these securities is subject to market price volatility until they are sold. Realized gains or losses from short-term investments are recorded in other expense (income), net.
Restricted Cash
The Company maintains certain cash amounts restricted as to withdrawal or use. The restricted cash is primarily collateral for performance bonds issued to certain customers. The collateral is provided in the form of a cash deposit to either
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
support the bond directly or to collateralize a letter of credit that supports the performance bonds. Restricted cash was $12.6 million and $13.0 million as of June 30, 2021 and December 31, 2020, respectively.
Credit Risk and Concentration
The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, short-term investments, and accounts receivable. Cash and cash equivalents and short-term investments are maintained primarily at two financial institutions, and deposits exceed federally insured limits. Risks associated with cash and cash equivalents, and short-term investments are mitigated by banking with creditworthy financial institutions. The Company has not experienced any losses on its deposits of cash and cash equivalents or its short-term investments.
Cash equivalents consist of short-term money market funds, corporate debt securities, and debt securities issued by the U.S. Treasury, which are deposited with reputable financial institutions. The Company’s cash management and investment policy limits investment instruments to investment-grade securities with the objective to preserve capital and to maintain liquidity until the funds can be used in business operations.
Accounts receivable are typically unsecured and are generally derived from revenue earned from transit agencies, universities and airports in North America and global commercial vehicle manufacturers in North America, the European Union, Australia and Japan. The Company periodically evaluates the collectability of its accounts receivable and provides an allowance for potential credit losses as necessary. 
Given the large order value for customers and the relatively low number of customers, revenue and accounts receivable have typically been concentrated with a limited number of customers.
Revenue Accounts Receivable
Three Months Ended June 30, Six Months Ended June 30, June 30, December 31,
2021 2020 2021 2020 2021 2020
Number of customers accounted for 10% or more* 1 4 2 4 1 2
__________________
*Two customers accounted for 38% and 26% of total revenue for the three months ended June 30, 2020, one customer accounted for 20% of total revenue for the six months ended June 30, 2020, and one customer accounted for 33% of accounts receivable, net as of December 31, 2020. No other individual customer accounted for more than 20% of the Company's revenue for the three and six months ended June 30, 2021 and 2020, or accounts receivable as of June 30, 2021 and December 31, 2020.
Single source suppliers provide the Company with a number of components that are required for manufacturing of its current products. In other instances, although there may be multiple suppliers available, many of the components are purchased from a single source. If these single source suppliers fail to meet the Company’s requirements on a timely basis at competitive prices, the Company could suffer manufacturing delays, a possible loss of revenue, or incur higher cost of sales, any of which could adversely impact the Company’s operating results.
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, short-term investments, accounts payable, and accrued and other current liabilities, approximates fair value due to the short period of time to maturity, receipt, or payment. The carrying amount of the Company’s debt, except for Convertible Notes (as defined below), approximates its fair value as the stated interest rates approximate market rates currently available to the Company.
In August 2020, the Company issued Secured Convertible Promissory Notes (the “Convertible Notes”) that, prior to the Closing, contained embedded features subject to derivative accounting. These embedded features were composed of conversion options that had the economic characteristics of a contingent early redemption feature settled in a variable number of shares of the Company’s stock. These conversion options were bifurcated and accounted for as a derivative liability separately from the host debt instrument. Embedded derivatives were recognized as a derivative liability on the balance sheet. The derivative liability was measured at fair value and subject to remeasurement at each balance sheet date. Upon the consummation of the Merger, the embedded conversion features associated with the Convertible Notes no longer qualify for
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
derivative accounting after the conversion price became fixed. The carrying amount of the embedded derivative, the fair value as of the date of the Closing, was reclassified to stockholders’ equity in accordance with Topic 815, Derivatives and Hedging.
The warrants issued in connection with the Convertible Notes were, prior to the Closing, classified as a liability (“legacy Proterra warrant liability”) because they could become exercisable into common stock upon a Qualified Initial Public Offering (“QIPO”) or into convertible preferred stock after 5 years from issuance date in the event that there is no QIPO during such period. Such warrants were measured at fair value, subject to remeasurement at each balance sheet date. Upon exercise of the warrants to common stock within 5 years from issuance date, the carrying amount of the warrant liability would be reclassified to stockholders’ equity. Upon the consummation of the Merger, the stock issuable upon exercise of the warrants is common stock, with no possibility to convert to Legacy Proterra convertible preferred stock. As a result, the carrying amount of the warrant liability was reclassified to stockholders’ equity.
In connection with ArcLight’s initial public offering in September 2020, 21,425,000 warrants to purchase ArcLight ordinary shares were issued, including 13,875,000 public warrants and 7,550,000 private placement warrants. These warrants were classified as liabilities as they did not meet the requirements for equity classification under Topic 815, Derivatives and Hedging. These warrants are continually measured at fair value, subject to remeasurement at each balance sheet date.
Inventories
Inventories are recorded at the lower of cost and net realizable value using the first-in, first-out method. Inventory costs consist primarily of the cost of materials, manufacturing support costs, including labor and factory overhead associated with such production, and shipping costs. The costs of vehicles, charger equipment or prototype products delivered to customers that have not yet met revenue recognition criteria are also included in inventories. The Company assesses the valuation of inventory and periodically records a provision to adjust inventory to its estimated net realizable value, including when the Company determines inventory to be obsolete or in excess of anticipated demand. Once inventory has been written-off or written-down, it creates a new cost basis for the inventory that is not subsequently written-up.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of property, plant, and equipment and right-of-use assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value.
In addition to the recoverability assessment, the Company periodically reviews the remaining estimated useful lives of property, plant, and equipment. If the estimated useful life assumption for any asset is reduced, the remaining net book value is depreciated over the revised estimated useful life.
The Company reviews long-lived assets for impairment at the lowest level for which separate cash flows can be identified. No impairment charge was recognized in the three or six months ended June 30, 2021 and 2020.
Deferred Revenue
Deferred revenue consists of billings or payments received in advance of revenue recognition that are recognized as revenue once the revenue recognition criteria are met. In some instances, progress billings are issued upon meeting certain milestones stated in the contracts. Accordingly, the deferred revenue balance does not represent the total contract value of non-cancelable arrangements. Invoices are typically due within 30 to 40 days.
The changes in deferred revenue consisted of the following (in thousands):
Deferred revenue as of December 31, 2020
$ 28,221 
Deferred revenue added during the six months ended June 30, 2021
15,510 
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognized from beginning balance during the six months ended June 30, 2021
(11,349)
Deferred revenue as of June 30, 2021
$ 32,382 
The current portion of deferred revenue represents the amount that is expected to be recognized as revenue within one year from the balance sheet date.
Revenue Recognition
The Company derives revenue primarily from the sale of vehicles and charging systems, the installation of charging systems, the sale of battery systems and powertrain components to other vehicle manufacturers, as well as the sale of spare parts and other services provided to customers. Product revenue consists of revenue earned from vehicles and charging systems, battery systems and powertrain components, installation of charging systems, and revenue from leased vehicles, charging systems, and batteries under operating leases. Leasing revenue recognized over time was approximately $0.5 million in each of the three months ended June 30, 2021 and 2020, and $1.1 million and $1.3 million in the six months ended June 30, 2021 and 2020, respectively. Parts and other service revenue includes revenue earned from spare parts, the design and development of battery systems and drive systems for other vehicle manufacturers, and extended warranties.
Goods and services that are promised in the Company’s contracts include vehicles, charging systems, battery systems and powertrain components to other vehicle manufacturers, installation of charging systems, spare parts, and extended warranty. The Company assesses the products and services promised in contracts at contract inception, and identifies performance obligations for each promise to transfer to the customer a product or service that is distinct. If a product or service is separately identifiable from other items in the bundled arrangement and a customer can benefit from the product or service on its own or with other resources that are readily available to the customer, then such product or service is considered distinct. Customer contracts typically have multiple performance obligations. Generally, the Company’s goods and services are considered separate performance obligations. Development services are typically sold on a stand-alone basis and are not bundled with other goods or services.
The transaction price of the contract is allocated to each performance obligation in a manner depicting the amount of consideration to which the Company expects to be entitled in exchange for transferring the goods or services to the customer (the “allocation objective”). If the allocation objective is met at contractual prices, no further allocations are made. Otherwise, the Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis.
To determine the standalone selling price of its promised products or services, the Company conducts an analysis to determine whether its products or services have an observable standalone selling price. In determining the observable standalone selling price, the Company requires that a substantial majority of the standalone selling prices for a product or service fall within a reasonably narrow range. If there is no directly observable standalone selling price for a particular product or service, then the Company estimates a standalone selling price by using the estimated cost plus margin or by reviewing external and internal market factors including, but not limited to, pricing practices including historical discounting, major service groups, and the geographies in which the Company offers products and services.
The Company recognizes revenue when or as it satisfies a performance obligation by transferring control of a product or service to a customer.
Revenue from product sales is recognized when control of the underlying performance obligations is transferred to the customer. Revenue from vehicles and charging systems, and installation of charging systems is typically recognized upon acceptance by the customer. Under certain contract arrangements, the control of the performance obligations related to the charging systems is transferred over time, and the associated revenue is recognized over the installation period using an input measure based on costs incurred to date relative to total estimated costs to completion. Spare parts revenue is recognized upon shipment. Extended warranty revenue is recognized over the life of the extended warranty using the time elapsed method. Development service contracts typically include the delivery of prototype products to customers. The performance obligation associated with the development of prototype products as well as battery systems and powertrain components to other vehicle manufacturers, is satisfied at a point in time, typically upon shipping.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue derived from performance obligations satisfied over time from charging systems and installation was $1.3 million and $0.8 million for the three months ended June 30, 2021 and 2020, respectively, and $5.1 million and $1.2 million for the six months ended June 30, 2021 and 2020, respectively. Extended warranty revenue is not material to date.
Typically, the Company does not have contract assets, as rights to consideration in exchange for goods or services that have transferred to a customer are not conditional on anything other than the passage of time. In certain cases, there is a condition that requires a contract asset to be recognized. As of June 30, 2021 and December 31, 2020, the contract assets balance was $1.1 million and $2.8 million, respectively. The contract assets are expected to be billed within the next twelve months and are recorded in prepaid expenses and other current assets on the balance sheets.
As of June 30, 2021, the amount of remaining performance obligations that have not been recognized as revenue was $303.8 million, of which 80% were expected to be recognized as revenue over the next 12 months and the remainder thereafter. This amount excludes the value of remaining performance obligations for contracts with an original expected length of one year or less.
Lease Arrangements
The Company offers customers leasing alternatives outside of the standard sales contracts for vehicles, charging equipment and batteries used in the vehicles. The leasing arrangements are typically bundled together with the sales contracts. The Company assessed the nature of the bundled arrangements under the revenue accounting standard. For arrangements that contain a lease, the Company determines the classification of the lease in accordance with Topic 842, Leases. A lease arrangement that transfers substantially all of the benefits and risks incident to ownership of the products is classified as a sales-type lease based on the criteria established by the accounting standard; otherwise the lease is classified as an operating lease.
For sales-type leases, product revenue is recognized upon customer acceptance of the underlying leased assets. The current portion of net investment in sales-type leases is recorded in Accounts Receivable, and the non-current portion is recorded in Other Assets on the Company’s balance sheets. The discounted unguaranteed residual value of underlying leased assets is not material to the net investment in lease balance.
For operating leases, the leasing revenue is recognized on a straight-line basis over the lease term, which is commenced upon customer acceptance.
The Company monitors the performance of customers who have leased batteries and are subject to ongoing payments. No allowance was recorded for the receivables under the leasing arrangements.
Product Warranties
The Company provides a limited warranty to customers on vehicles, charging systems, and battery systems. The limited warranty ranges from one to twelve years depending on the components. Separately, the Company also periodically performs field service actions related to product service campaigns. Pursuant to these warranties and field service actions, the Company will repair, replace, or adjust the parts on the products that are defective in factory-supplied materials or workmanship. The Company records a warranty reserve for the products sold at the point of revenue recognition, which includes the best estimate of the projected costs to repair or replace items under the limited warranty and field service actions. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given the relatively short history of sales. Changes to the historical or projected warranty experience may cause material changes to the warranty reserve in the future. The warranty reserve does not include projected warranty costs associated with the vehicles under operating leases, as the costs to repair these warranty claims are expensed as incurred. The portion of the warranty reserve expected to be incurred within the next 12 months is included within accrued liabilities while the remaining balance is included within other long-term liabilities on the balance sheets.
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Warranty expense is recorded as a component of cost of goods sold. Accrued warranty activity consisted of the following (in thousands):
Six Months Ended June 30, 2021
Warranty reserve - beginning of period $ 18,582 
Warranty costs incurred (3,344)
Net changes in liability for pre-existing warranties, including expirations (423)
Provision for warranty 6,768 
Warranty reserve - end of period $ 21,583 
2.    Adoption of New Accounting Standards
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The Company adopted this standard on January 1, 2021, and it had no material impact on the financial statements.
Recent Accounting Pronouncements Not Yet Adopted
ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This standard simplifies the accounting for convertible instruments by removing certain separation models in ASC 470- 20, Debt—Debt with Conversion and Other Options, for convertible instruments. This standard updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, this standard made amendments to the EPS guidance in Topic 260 for convertible instruments, the most significant impact of which is requiring the use of the if-converted method for diluted earnings per share calculation, and no longer allowing the net share settlement method. This standard also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. This standard is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted after December 15, 2020. Adoption of this standard can either be on a modified retrospective or full retrospective basis. The Company is currently evaluating the impact of adoption of this standard.
3.    Reverse Recapitalization
On June 14, 2021, Phoenix Merger Sub merged with Legacy Proterra, with Legacy Proterra surviving as a wholly-owned subsidiary of ArcLight. In connection with the Business Combination, Legacy Proterra changed its name to “Proterra Operating Company, Inc.” and ArcLight changed its name to “Proterra Inc”.
The following transactions occurred upon the Closing:
each share of outstanding Legacy Proterra convertible preferred stock was converted into shares of Proterra common stock in accordance with the applicable conversion ratio immediately prior to the effective time, and each share of Legacy Proterra common stock (including shares issued upon conversion of Legacy Proterra convertible preferred stock and warrants net exercised upon Closing) was converted into shares of common stock after giving effect of the Exchange Ratio of 0.8925 and resulting in the issuance of 123,752,882 shares of common stock;
certain holders of Convertible Notes with an original aggregate principal amounts of $46.5 million elected to convert their outstanding Convertible Notes balances including accrued PIK interest and cash interest at the Closing resulting in the issuance of 7.4 million shares of common stock;
each outstanding Legacy Proterra option was converted into an option to purchase shares of Proterra common stock by multiplying the number of underlying shares by the Exchange Ratio, rounded down to the nearest whole share,
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
resulting in such options being exercisable to purchase for an aggregate of 22,532,619 shares of Proterra common stock; the exercise price of each converted option was determined by dividing the per share exercise price of the respective Legacy Proterra options by the Exchange Ratio of 0.8925, rounded up to the nearest whole cent;
each outstanding Legacy Proterra warrant to purchase Legacy Proterra common stock and convertible preferred stock was converted into a warrant to purchase shares of Proterra common stock by multiplying the number of underlying shares by the Exchange Ratio, rounded down to the nearest whole share, resulting in such warrants being exercisable to purchase an aggregate of 3,504,523 shares of Proterra common stock; the exercise price of each converted warrant will be determined by dividing the per share exercise price of the respective Legacy Proterra warrant by the Exchange Ratio of 0.8925, rounded up to the nearest whole cent;
each outstanding Convertible Note that was not optionally converted in connection with the Closing remained outstanding and became convertible into shares of Proterra common stock in accordance with the terms of such Convertible Notes.
15,172 public shares were redeemed by ArcLight shareholders, and an aggregate of $0.2 million was paid from the trust account to these redeeming holders; and each share of ArcLight Class A and Class B ordinary shares was converted into the right to receive one share of Proterra’s common stock resulting in the issuance of 34,671,900 shares of common stock;
pursuant to the subscription agreements between ArcLight and certain investors (the “PIPE Investors”), the PIPE Investors purchased 41.5 million shares of Proterra common stock at a purchase price of $10.00 per share for aggregate gross proceeds of $415.0 million (the “PIPE Financing”);
each ArcLight warrant outstanding immediately prior to the consummation was converted into a warrant exercisable into an equivalent number of shares of Proterra common stock, resulting in such warrants being exercisable for an aggregate of 21,424,994 shares of Proterra common stock; and
the 669,375 shares of Proterra common stock underlying certain Milestone Options (as defined below) fully vested upon the Closing.
Upon the occurrence of any of the following events during the first five years following the Closing of the Merger (“earnout period”), up to an additional 22,809,500 shares of Proterra common stock (the “Earnout Stock”) may be issued to former holders of Legacy Proterra convertible preferred stock, common stock, warrants, vested options and Convertible Notes as of immediately prior to the closing of the Merger, as follows:
a.21.0526% of the Earnout Stock if over any 20 trading days within any 30 trading day period, the volume-weighted average price (“VWAP”) of the Proterra common stock is greater than or equal to $15.00 per share or there occurs any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $15.00 per share (the “First Earnout Shares”);
b.an additional 26.3158% of the Earnout Stock if over any 20 trading days within any 30 trading day period, the VWAP of the Proterra common stock is greater than or equal to $20.00 per share or there occurs any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $20.00 per share;
c.an additional 26.3158% of the Earnout Stock if over any 20 trading days within any 30 trading day period, the VWAP of the Proterra common stock is greater than or equal to $25.00 per share or there occurs any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $25.00 per share;
d.an additional 26.3158% of the Earnout Stock if over any 20 trading days within any 30 trading day period, the VWAP of the Proterra common stock is greater than or equal to $30.00 per share or there occurs any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $30.00 per share;
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to a letter agreement (the “Sponsor Letter Agreement”) with ArcLight CTC Holdings, L.P. (the “Sponsor”), 10% of the Proterra common stock received by the Sponsor upon consummation of the Merger in exchange for its outstanding shares of ArcLight Class B ordinary shares, excluding 140,000 shares owned by the ArcLight board of directors, was subject to vesting and forfeiture (the “Sponsor Earnout Stock”). Such shares of Sponsor Earnout Stock would vest if over any 20 trading days within any 30 trading day period during the five-year earnout period, the VWAP of the Proterra common stock was greater than or equal to $15.00 per share or there occurred any transaction resulting in a change in control with a valuation of the Proterra common stock that is greater than or equal to $15.00 per share.
The Earnout Stock and Sponsor Earnout Stock are equity-classified instruments under U.S. GAAP.
The number of shares of Proterra common stock issued immediately following the consummation of the Merger was (in thousands):
Shares
Ordinary shares Class A of ArcLight, outstanding prior to Merger 27,750 
Less redemption of ArcLight shares (15)
Sponsor 6,257 
Sponsor Earnout Stock 680
Common stock of ArcLight 34,672
PIPE Investors 41,500
Legacy Proterra shares 131,176
Total shares of common stock immediately after Merger 207,348

Immediately after the Merger, Proterra is authorized to issue 510.0 million shares, with a par value of $0.0001 per share. As of the Closing, the authorized shares consisted of 500.0 million shares of common stock and 10.0 million shares of preferred stock, and there were 207.3 million shares of common stock issued and outstanding, and no shares of preferred stock issued and outstanding. In addition, as of the Closing, there were 24.9 million warrants issued and outstanding, including 13.9 million public warrants, 7.6 million private placement warrants, and 3.5 million Legacy Proterra warrants.
As of the Closing, a total of 82.3 million shares were reserved for future issuance upon the exercise of stock options, warrants and the issuance of Earnout Stock, of which 10.4 million shares were reserved for issuance under Proterra’s 2021 Equity Incentive Plan, 22.5 million shares were reserved under Legacy Proterra’s 2010 Equity Incentive Plan and 1.6 million shares reserved under Proterra’s 2021 Employee Stock Purchase Plan.
The Merger has been accounted for as a reverse merger and a recapitalization under U.S. GAAP with Legacy Proterra being the accounting acquirer, based on evaluation of the following facts and circumstances:
Legacy Proterra’s stockholders have a majority of the voting power of Proterra following the Merger;
Legacy Proterra has initially designated a majority of the board of directors of Proterra;
Legacy Proterra’s management comprise the management of Proterra;
Legacy Proterra comprises the ongoing operations of Proterra;
Legacy Proterra is the larger entity based on historical revenues and business operations; and
Proterra has assumed Legacy Proterra’s name.
Under this method of accounting, ArcLight is treated as the “acquired” company for accounting and financial reporting purposes. Accordingly, for accounting purposes, this merger transaction is treated as the equivalent of Legacy Proterra issuing equity for the net assets of ArcLight, accompanied by a recapitalization. The net assets of ArcLight have been stated at historical cost, with no goodwill or other intangible assets recorded.
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company received aggregate cash proceeds of $649.3 million, net of $13.8 million of PIPE Financing fees, $18.5 million of other transaction costs paid at Closing, $9.7 million of ArcLight IPO deferred underwriting fees payable, $1.3 million of other ArcLight’s accrued expenses, and $0.1 million of ArcLight’s related party payable. The unbilled ArcLight expenses incurred prior to the Closing were paid from the cash proceeds received by the Company. The transaction costs including advisory, legal and other professional services directly related to the Merger were recorded in the additional paid-in capital in the balance sheet to offset against proceeds. The deferred transaction costs of approximately $2.9 million paid by the Company prior to the Closing were recorded to the additional paid-in capital and classified as financing activities in the statement of cash flow for the six months ended June 30, 2021.
In July 2021, the conditions for the issuance of the First Earnout Shares and the vesting of the Sponsor Earnout Stock were satisfied, resulting in an aggregate of 4,800,463 shares of common stock being issued and the 679,750 shares of Sponsor Earnout Stock fully vesting. See Note 14, Subsequent Events.
4.    Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value. Fair value is determined based on the exit price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities; 
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and 
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. 
Financial assets measured at fair value on a recurring basis using the above input categories were as follows (in thousands):
Pricing Category Fair Value at
June 30, 2021 December 31, 2020
Assets:
Cash equivalents and marketable securities:
Money market funds Level 1 $ 627,735  $ 744 
U.S. Treasury securities Level 1 —  64,997 
Short-term investments:
U.S. Treasury securities Level 1 126,693  68,990 
Total $ 754,428  $ 134,731 
Liabilities:
Other non-current liabilities
Derivative liability Level 3 $ —  $ 70,870 
Legacy Proterra warrant liability Level 3 —  39,670 
Public warrant liability Level 1 77,840  — 
Private placement warrant liability Level 3 51,490  — 
Total $ 129,330  $ 110,540 
As of June 30, 2021 and December 31, 2020, short-term investments were primarily comprised of U.S. Treasury securities. The unrealized gain/losses related to fixed income debt securities were immaterial and primarily due to changes in interest rates, which are temporary in nature.
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PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2021 and December 31, 2020, the contractual maturities of the short-term investments were less than one year.
In August 2020, the Company issued Convertible Notes that, prior to the Closing, contained embedded features subject to derivative accounting. Refer to Note 6, Debt, for additional information on the Convertible Notes.
The embedded derivatives were recognized as a derivative liability on the balance sheet, and were measured at fair value, subject to remeasurement at each balance sheet date. The fair value of derivative liability was measured as the difference between the estimated value of the Convertible Notes with and without such conversion features utilizing a Monte Carlo simulation pricing model.
The warrants issued in connection with the Convertible Notes were, prior to the Closing, classified as a liability because they could become exercisable into common stock upon a QIPO or into convertible preferred stock after five years from issuance date in the event that there was no QIPO during such period. Such warrants were measured at fair value, subject to remeasurement at each balance sheet date. The fair value of the warrant liability was measured using a Monte Carlo Simulation pricing model.
The fair value of the Convertible Notes was $418.7 million as of June 30, 2021. The carrying value of the Convertible Notes of $90.9 million, net of $68.8 million unamortized debt discount and issuance costs, as of June 30, 2021, was recorded in Debt, non-current on the balance sheets.
The public warrants and private placement warrants issued in connection with ArcLight’s initial public offering were classified as a liability prior to the Closing. These warrants are continually classified as a liability and measured at fair value, subject to remeasurement at each balance sheet date. The fair value of the warrant liability of private placement warrants was measured using a Binomial Lattice model.
The valuation of derivative and Legacy Proterra warrant liabilities and the Convertible Notes, and the private placement warrants are based on certain significant inputs not observable in the market, and thus represents a level 3 measure. The key inputs to the valuation model include fair value of equity, equity volatility, expected term until a liquidity event to exit, expected term until exercise, and risk-free interest rate.
A summary of the changes of the derivative liability and warrant liabilities is as follows (in thousands):
Derivative liability Legacy Proterra warrant liability Private placement warrant liability Public warrant liability
Fair value as of December 31, 2020
$ 70,870  $ 39,670  $ —  $ — 
Warrant liability acquired as part of the reverse recapitalization —  —  57,610  84,640 
Change in fair value 111,684  47,346  (6,120) (6,800)
Reclassification of liability upon exercise of warrants —  (17,696) —  — 
Reclassification of liability upon the reverse recapitalization (182,554) (69,320) —  — 
Fair value as of June 30, 2021
$ —  $ —  $ 51,490  $ 77,840 
The change in fair value of derivative and warrant liabilities is recorded in the statements of operations.
23

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

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

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property, plant, and equipment, net, consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Computer hardware
$ 4,861  $ 4,708 
Computer software
9,267  8,849 
Internally used vehicles and charging systems
19,249  19,136 
Leased vehicles and batteries
7,215  7,081 
Leasehold improvements
10,334  10,234 
Machinery and equipment
25,204  26,026 
Office furniture and equipment
1,987  1,854 
Tooling
22,947  21,727 
Finance lease right-of-use assets
179  179 
Construction in progress
3,502  1,830 
104,745  101,624 
Less: Accumulated depreciation and amortization
(55,356) (48,037)
Total
$ 49,389  $ 53,587 
As of June 30, 2021 and December 31, 2020, construction in progress was comprised of various assets that are not available for their intended use as of the balance sheet date.
As of June 30, 2021, the Company billed approximately $1.4 million of reimbursable equipment costs under the 2019 grant agreement with the California Energy Commission. The receivables are recorded in prepaid expenses and other current assets in the balance sheets, and offset the costs of machinery and equipment.
For the three and six months ended June 30, 2021, depreciation and amortization expense was $4.0 million and $7.7 million, respectively. For the three and six months ended June 30, 2020, depreciation and amortization expense was $4.1 million and $7.8 million, respectively.
Accrued liabilities consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Accrued payroll and related expenses
$ 6,798  $ 6,695 
Accrued sales and use tax
1,786  975 
Warranty reserve
8,173  6,121 
Financing obligation
2,590  3,056 
Accrued audit and accounting related expenses
1,073  428 
Accrued charger installation costs
1,035  769 
Accrued legal expenses 799  510 
Other accrued expenses
2,240  1,182 
Total
$ 24,494  $ 19,736 
Other long-term liabilities consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Warranty reserve $ 13,410  $ 12,461 
Finance lease liabilities, non-current 102  117 
Total $ 13,512  $ 12,578 

In July 2016, the Company entered into a bus sale and lease transaction for ten Catalyst buses. These buses are leased to other parties for five years by the customer. At the end of the lease term, the fourth quarter of 2021, the Company has an
25

PROTERRA INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
obligation to repurchase the buses back from the customer. The Company makes a portion of the monthly lease payments directly to the customer and also provide a guarantee to the customer on the remaining lease payments if the lessee fails to pay. The Company received $6.0 million from the customer directly upon delivery in 2016. Under U.S. GAAP, this sales transaction is considered as a borrowing and the lease transaction is considered as an operating lease.
The financing obligation was $2.6 million and $3.1 million as of June 30, 2021 and December 31, 2020, respectively. Interest expense on the financing obligation is recognized using the effective interest method. The monthly lease payment is recognized as leasing revenue. The costs of the buses are recorded as leased vehicles in property, plant, and equipment on the balance sheets.
6.    Debt
Debt, net of debt discount and issuance costs, consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Senior Credit Facility
$ —  $ 16,809 
PPP loan
10,000  10,000 
Convertible Notes
90,933  106,443 
Total debt    
100,933  133,252 
Less debt, current    
10,000  — 
Debt, non-current
$ 90,933  $ 133,252 
Senior Credit Facility
In May 2019, the Company entered into a Loan, Guaranty and Security Agreement for a senior secured asset-based lending facility (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 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 percentages of eligible accounts receivable and inventory, subject to certain reserves, to be determined in accordance with the Senior Credit Facility. The commitment under the Senior Credit Facility includes a $10.0 million letter of credit sub-line. 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 other restricted property.
Borrowings under the Senior Credit Facility bear 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. 
The outstanding balance under the Senior Credit Facility was $17.1 million as of December 31, 2020, with a maturity date in May 2024. The interest rate was 3.09% per annum as of December 31, 2020.
In June 2021, the Company made a $17.1 million payment and there was no principal outstanding as of June 30, 2021. The unamortized debt issuance costs of $0.2 million as of June 30, 2021 was recorded in the prepaid expenses and other
26


current assets and other assets on the balance sheets. While there is no debt liability outstanding under this facility, the Company has an aggregate of $10.4 million letters of credit outstanding, using some available capacity, as of June 30, 2021.
Small Business Administration Loan
In May 2020, the Company received Small Business Administration (“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 and matures on May 6, 2022. As of June 30, 2021, the interest rate was 1.0% per annum and payable monthly commencing in October 2021. All or a portion of the PPP loan may be forgiven by the SBA upon application with supporting documentation of expenditures in accordance with SBA requirements, which include employees being kept on the payroll for eight weeks after the date of the loan and the proceeds being used for payroll, rent, mortgage interest, or utilities.
Convertible Notes
In August 2020, the Company entered into a Note Purchase Agreement for Secured Convertible Promissory Notes. The Convertible Notes had an original aggregate principal amount of $200.0 million as of the issuance date with a cash interest of 5.0% per annum payable at each quarter end and a paid-in-kind interest of 4.5% per annum payable by increasing the principal balance at each quarter end. The Convertible Notes will mature in August 2025, and the Company may not make prepayment unless approved by the required holders of the Convertible Notes.
In connection with the Closing, the holders had the option to elect to convert the Convertible Notes into shares of common stock. Certain holders of Convertible Notes elected to convert their Convertible Notes into Proterra common stock in connection with the Closing, as described below.
At any time after the expiration of the lock-up period following the closing of the Merger, the remaining outstanding Convertible Notes will automatically be converted into Proterra common stock if at any time the volume-weighted average price (VWAP) of the common stock over a period of 20 consecutive trading days exceeds 150% of the conversion price. Based on the determined conversion price, the automatic conversion of the Convertible Notes will be triggered based on a VWAP of $9.86.
Each of the Convertible Notes shall rank equally without preference or priority of any kind over one another, but senior in all rights, privileges and preferences to all other 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.
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 preferred stock immediately prior to such liquidation event.
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 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.
The Convertible Notes will mature in August 2025 or will be settled by issuing common stock, and accordingly are classified as a non-current liability on the Company’s balance sheets.
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 stock at an exercise price of $0.02 per share. Following the Closing, the
27


stock issuable upon exercise of the warrants is Proterra common stock. The warrants are exercisable for 7 years, and will be automatically exercised in the event of a change of control transaction or the expiration of the warrants.
The warrants are 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. The warrant liability of $29.0 million was initially measured at fair value on its issuance date and recorded as a debt discount, and was 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 within 5 years from issuance date, the carrying amount of the warrant liability is reclassified to stockholders’ equity. 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.
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 a 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 qualify 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 will be 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 of the Merger. 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 amortization expense of debt discount and issuance costs was $24.6 million and $28.3 million for the three and six months ended June 30, 2021, respectively.
The Convertible Notes, net of debt discount and issuance costs, consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Principal
$ 153,500  $ 200,000 
PIK interest
6,183  3,501 
Total principal
159,683  203,501 
Less debt discount and issuance costs
(68,750) (97,058)
Total Convertible Notes
$ 90,933  $ 106,443 
As of June 30, 2021, the contractual future principal repayments of the total debt were as follows (in thousands):
2022
$ 10,000 
2025 (1)
159,683 
Total debt
$ 169,683 
__________________
(1)Including PIK interest added to principal balance through June 30, 2021.
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7.    Leases
As a Lessor
The net investment in leases consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Net investment in leases, current $ 547  $ 398 
Net investment in leases, non-current 4,176  3,101 
Total net investment in leases $ 4,723  $ 3,499 
Interest income from accretion of net investment in leases is not material in the three and six months ended June 30, 2021 or 2020.
Future minimum payments receivable from operating and sales-type leases as of June 30, 2021 for each of the next five years are as follows:
Operating leases Sales-type leases
Remainder of 2021 $ $ 268 
2022 105  535 
2023 105  504 
2024 105  380 
2025 105  653 
Thereafter
222  3,077 
Total minimum lease payments
$ 648  $ 5,417 
As a Lessee
The Company leases its office and manufacturing facilities in Burlingame, California, Greenville, South Carolina, City of Industry, California, and Rochester Hills, Michigan under operating lease agreements with various expiration dates through 2026.
In June 2018, the Company entered into an agreement to sublease its office facilities in Rochester Hills, Michigan from July 2018 to October 2023. The total sublease payments are approximately $2.3 million for the lease term. The sublease income is recorded in the other expense (income), net on the statement of operations.
Maturities of operating lease liabilities as of June 30, 2021 were as follows (in thousands):
Remainder of 2021 $ 2,065 
2022 3,650 
2023 2,808 
2024 1,685 
2025 1,039 
Thereafter
443 
Total undiscounted lease payment 11,690 
Less: imputed interest (897)
Total operating lease liabilities $ 10,793 

Operating lease expense was $1.0 million for the three months ended June 30, 2021 and 2020, and $2.0 million for the six months ended June 30, 2021 and 2020, respectively.
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Short-term and variable lease expenses for the three and six months ended June 30, 2021 and 2020 were not material.
Supplemental cash flow information related to leases were as follows (in thousands):
Six Months Ended June 30,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$ (2,020) $ (1,901)
In the six months ended June 30, 2021, $1.5 million operating lease right-of-use assets were obtained in exchange for lease liabilities, and the cash flow from financing leases was not material. In the six months ended June 30, 2020, the cash flow from financing leases and right-of-use assets obtained in exchange for lease obligations were not material.
Operating lease right-of-use assets and liabilities consist of the following (in thousands):
June 30, 2021 December 31, 2020
Operating leases
Operating lease right-of-use assets
$ 10,113  $ 10,310 
Operating lease liabilities, current
3,735  3,153 
Operating lease liabilities, non-current
7,058  7,891 
Total operating lease liabilities
$ 10,793  $ 11,044 
The weighted average remaining lease term and discount rate of operating leases are 3.5 years and 4.6%, respectively, as of June 30, 2021.
As of June 30, 2021, the Company had no significant additional operating leases and finance leases that have not yet commenced.
8.    Commitments and Contingencies
Purchase Commitments
As of June 30, 2021, the Company had outstanding inventory and other purchase commitments of $311.7 million.
Letters of Credit
As of June 30, 2021, the Company had letters of credit outstanding totaling $10.5 million, which will expire over various dates in 2021 and 2022.
Guarantees
The Company provides guarantees of lease payments for vehicles under the financing transaction discussed in Note 4, in the event the lessee does not make payments to the financing company.
The Company regularly reviews its performance risk under the arrangement, and in the event that it becomes probable that it will be required to perform under a guarantee, the fair value of probable payment will be recorded. No guarantee liability was recorded as of June 30, 2021 and December 31, 2020.
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
30


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, 2021 and December 31, 2020, the Company was not a party to any legal proceedings that would have a material adverse effect on its business.
9.    Stockholders’ Equity
On June 14, 2021, the Merger was consummated and, following the Closing, the Company is authorized to issue 510,000,000 shares of capital stock, with a par value of $0.0001 per share. The authorized shares consisted of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of June 30, 2021, 207,620,510 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.
The Company has retroactively adjusted the shares of Legacy Proterra stock issued and outstanding prior to June 14, 2021 to give effect to the Exchange Ratio of 0.8925 established in the Merger Agreement to determine the number of shares of Proterra common stock into which they were converted. Immediately prior to the Merger, Legacy Proterra was authorized to issue 271,920,636 shares of stock, with a par value of $0.0001 per share, with 156,276,750 shares designated as common stock and 115,643,886 shares of convertible preferred stock. All of the outstanding Legacy Proterra convertible preferred stock was converted to Legacy Proterra common stock immediately prior to the Merger. See Note 3, Reverse Recapitalization.
The Company had reserved shares of common stock for issuance as follows (in thousands):
June 30, 2021
Shares reserved for stock options under 2010 Equity Incentive Plan
22,308 
Shares available for grant under 2021 Equity Incentive Plan
10,407 
Shares available for grant under 2021 Employee Stock Purchase Plan
1,630 
Shares reserved for warrants
24,862 
Shares reserved for Earnout Stock
22,810 
Total
82,017 
10.     Warrants
Public Warrants
Public warrants may only be exercised for a whole number of shares of common stock at a price of $11.50 per share, subject to adjustment, at any time commencing on September 25, 2021, provided in each case that the Company has an effective registration statement under the Securities Act covering the common stock issuable upon exercise of the warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their warrants on a cashless basis under the circumstances specified in the Amended and Restated Warrant Agreement) and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. The warrants will expire June 14, 2026 or earlier upon redemption or liquidation.
The Company has agreed that it will use its commercially reasonable efforts to maintain the effectiveness of the registration statement and a current prospectus relating to those shares of common stock until the warrants expire or are redeemed, as specified in the Amended and Restated Warrant Agreement. During any period when the Company will have failed to maintain an effective registration statement covering the issuance of the common stock issuable up exercise of the warrants, holders of the warrants will have the right to exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.
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Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the private placement warrants):
Redemption of warrants when the price per share of common stock equals or exceeds $18.00.
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
in whole and not in part;
at a price of $0.01 per warrant;
upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and
if, and only if, the closing price of the common stock equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders.
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those common stock is available throughout the 30-day redemption period. If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
The Company has established the last of the redemption criteria discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and the Company issues a notice of redemption of the warrants, each warrant holder will be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the shares of common stock may fall below the $18.00 redemption trigger price (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) as well as the $11.50 (for whole shares) warrant exercise price after the redemption notice is issued.
Redemption of warrants when the price per share of common stock equals or exceeds $10.00.
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
in whole and not in part;
at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the make-whole exercise table specified in the Amended and Restated Warrant Agreement, based on the redemption date and the “fair market value” of common stock (as provided in such table) except as otherwise provided for in the Amended and Restated Warrant Agreement;
if, and only if, the closing price of the shares of common stock equals or exceeds $10.00 per public share (as adjusted for share subdivisions, share dividends, reorganizations, reclassifications, recapitalizations and the like) for any 20 trading days within the 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and
if the closing price of the common stock for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders is less than $18.00 per share (as adjusted for share subdivisions, share dividends, reorganizations, reclassifications, recapitalizations and the like), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above.
Beginning on the date the notice of redemption is given until the warrants are redeemed or exercised, holders may elect to exercise their warrants on a cashless basis.
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The public warrants were classified as liabilities as they do not meet the requirements for equity classification under Topic 815, Derivatives and Hedging. Immediately prior to the Closing, the warrant liability was $84.6 million. Such warrants are measured at fair value, subject to remeasurement at each balance sheet date.
Private Placement Warrants
Except as described below, the private placement warrants have terms and provisions that are identical to those of the public warrants. The private placement warrants (including the shares of common stock issuable upon exercise of the private placement warrants) will not be transferable, assignable or salable until July 14, 2021, except pursuant to limited exceptions to the Company’s officers and directors and other persons or entities affiliated with the Sponsor, and they will not be redeemable by the Company, except as described above when the price per share of common stock equals or exceeds $10.00, so long as they are held by the Sponsor or its permitted transferees (except as otherwise set forth herein). The Sponsor, or its permitted transferees, has the option to exercise the private placement warrants on a cashless basis. If the private placement warrants are held by holders other than the Sponsor or its permitted transferees, the private placement warrants will be redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the public warrants. Any amendment to the terms of the private placement warrants or any provision of the Amended and Restated Warrant Agreement with respect to the private placement warrants will require a vote of holders of at least 65% of the number of the then outstanding private placement warrants.
The private placement warrants are classified as liabilities as they do not meet the requirements for equity classification under Topic 815, Derivatives and Hedging. Immediately prior to the Closing, the warrant liability was $57.6 million. Such warrants are measured at fair value, subject to remeasurement at each balance sheet date.
Legacy Proterra Warrants
As of June 30, 2021, the Company had 3,422,794 common stock warrants outstanding exchanged for Legacy Proterra warrants, including 3,421,902 warrants issued to the holders of Convertible Notes as described in Note 6.
Activity of warrants in the six months period ended June 30, 2021 is as follows:
Public warrants Private placement warrants Other warrants Total warrants
Outstanding as of December 31, 2020 —  —  5,104,030  5,104,030 
Issued as part of the Merger 13,874,994  7,550,000  —  21,424,994 
Exercised 1
—  —  (1,681,236) (1,681,236)
Outstanding as of June 30, 2021 13,874,994  7,550,000  3,422,794  24,847,788 
__________________
1. Certain warrant holders elected to net exercise their warrants, and as a result, an aggregate of 1,564,958 shares of common stock were issued.
11.    Equity Plans and Stock-based Compensation
2010 Equity Incentive Plan
Legacy Proterra’s 2010 Equity Incentive Plan (the “2010 Plan”) was terminated upon the effective date of Proterra’s 2021 Equity Incentive Plan (the “2021 Plan”), and accordingly, no shares will be available for issuance under the 2010 Plan. Upon Closing, the outstanding awards under the 2010 Plan were converted into options exercisable to purchase an aggregate of 22,532,619 shares of common stock. Following the Closing, the exchanged options continue to be subject to the terms of the 2010 Plan and applicable award agreements. As of June 30, 2021, options to purchase 22,308,177 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 (“SARs”), restricted stock units (“RSUs”), performance
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awards, and stock bonus awards to officers, employees, directors and consultants. No awards were issued under the 2021 Plan as of June 30, 2021.
The Company initially reserved 10,000,000 shares of common stock, plus 387,513 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 will increase 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.
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.
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 will increase 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.
A summary of the Company’s stock option activity and related information was as follows:
Options Outstanding
Number of Stock Options Outstanding Weighted- Average Exercise Price Weighted-Average Remaining Contractual Life
(Years)
Aggregate Intrinsic Value (in thousands)
Balance as of December 31, 2020 (1)
20,178,784  3.81  7.4 $ 65,056 
Granted
317,998  8.21 
Exercised
(1,206,053) 3.13 
Cancelled/forfeited/expired
(329,427) 5.08 
Balance as of June 30, 2021 (2)
18,961,302  3.90  7.3 $ 250,476 
Exercisable as of June 30, 2021 (3)
12,336,453  3.27  6.2 $ 170,737 
__________________
(1)Excluding CEO Equity Awards of 2,677,500 shares and Milestone Options of 669,375 shares outstanding, of which 502,031 shares vested and exercisable as of December 31, 2020. Refer to section below for further details.
(2)Excluding CEO Equity Awards of 2,677,500 shares and Milestone Options of 669,375 shares outstanding as of June 30, 2021.
(3)Excluding 836,720 shares exercisable under the Equity Awards with weighted average exercise price of $19.61 per share as of June 30, 2021.
In March 2020, in conjunction with Mr. Allen’s appointment as the President and Chief Executive Officer, the board of directors 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 4 years, (2) 2,677,500 shares of a time-based award consisting of 4 tranches with an exercise price of $11.21, $16.81, $22.41 and $28.02 per share, respectively, and vesting quarterly over 4 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
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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.
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 $6.7 million for the six months ended June 30, 2021. The total estimated grant date fair value of stock options vested was $7.5 million for the six months ended June 30, 2021. As of June 30, 2021, the total unrecognized stock-based compensation expense related to outstanding stock options was $28.9 million, which is expected to be recognized over a weighted-average period of 2.7 years.
Determining Fair Value of Stock Options
The fair value of stock options granted is estimated on the date of grant using the following assumptions:
Six Months Ended June 30,
2021 2020
Expected term (in years)
6.1 6.0
Risk-free interest rate
1.1  % 0.6  %
Expected volatility
55.6  % 69.0  %
Expected dividend rate
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,
2021 2020 2021 2020
Cost of goods sold
$ 270  $ 228  $ 546  $ 453 
Research and development
545  350  1,058  722 
Selling, general and administrative
4,275  1,868  6,483  3,696 
Total stock-based compensation expense
$ 5,090  $ 2,446  $ 8,087  $ 4,871 
12.    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 and warrants, to the extent they are dilutive.
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The computation of the Company’s 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,
2021 2020 2021 2020
Numerator:
Net loss
$ (189,027) $ (22,699) $ (241,189) $ (47,524)
Denominator:
Weighted-average shares used in computing net loss per share of common stock, basic and diluted (1) (2)
44,571  4,064  25,403  4,004 
Net loss per share of common stock, basic and diluted
$ (4.24) $ (5.59) $ (9.49) $ (11.87)
_____________
(1)Excludes unvested shares of Sponsor Earnout Stock from the calculation of the weighted average shares, as they were subject to forfeiture as of June 30, 2021.
(2)Includes the remaining outstanding warrants issued in connection with the Convertible Notes with an exercise price of $0.02 per share as of the Closing Date. The exercise of these warrants is virtually assured based on common stock trading price in June 2021. Therefore, the outstanding shares are included in the denominator of both the basic and diluted EPS calculation. In addition, prior to the Closing Date, such warrants were liability classified, and accordingly excluded from EPS calculation.

As a result of the Merger, the Company has retroactively adjusted the weighted-average number of shares of common stock outstanding prior to the Closing Date by multiplying them by the Exchange Ratio of 0.8925 used to determine the number of shares of common stock into which they converted. The common stock issued as a result of the convertible preferred stock conversion on the Closing Date was included in the basic net loss per share calculation on a prospective basis.
Prior to the Closing Date, the Company applied the two-class method to calculate its basic and diluted net loss per share of common stock, as the convertible preferred stock were participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. However, the two-class method did not impact the net loss per share of common stock as the Company was in a loss position for each of the periods presented and holders of convertible preferred stock did not participate in losses.
Since the Company was in a loss position for each of the periods presented, diluted net loss per share was the same as basic net loss per share for each period as the inclusion of all potential common stock shares outstanding would have been anti-dilutive. Prior to the Closing Date, convertible preferred stock, warrants and stock options outstanding were excluded from the diluted net loss per share calculation. The potentially dilutive securities that were excluded from the diluted per share calculation because they would have been anti-dilutive as of June 30, 2021 were as follows (in thousands):
June 30, 2021
 Stock options to purchase common stock 22,308 
 Public warrants 13,875 
 Private placement warrants 7,550 
 Other warrants to purchase common stock
 Sponsor Earnout Stock 680 
44,414 
13.    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 $0.6 million and $0.4 million in the three months ended June 30, 2021 and 2020, and $1.1 million and $0.9 million in the six months ended June 30, 2021 and 2020, respectively.
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14.    Subsequent Events
In July 2021, the conditions for the issuance of the First Earnout Shares was satisfied as described in Note 3, resulting in an aggregate of 4,800,463 shares of common stock being issued to eligible holders on a pro rata basis, pursuant to the terms of the Merger Agreement.
In July 2021, the conditions for the vesting of the Sponsor Earnout Stock was satisfied as described in Note 3, resulting in the 679,750 shares of Sponsor Earnout Stock fully vesting.
In August 2021, the letter of credit sub-line commitment under the Senior Credit Facility was increased by $5.0 million to $15.0 million, and there was no change to the borrowing capacity.
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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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our audited financial statements for the year ended December 31, 2020 and the related notes incorporated by referenced in our Current Report on Form 8-K, filed with SEC on June 17, 2021 (the “Super 8-K”). This discussion contains forward-looking statements and involves numerous risks and uncertainties. Actual results may differ materially from the results described in or implied by the forward-looking statements. You should carefully read the section entitled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from these forward-looking statements.
Overview
We are a leading developer and producer of commercial electric vehicle technology with an integrated business model focused on providing end-to-end solutions that enable commercial vehicle electrification.
While our business has historically been centered on the development and sale of electric transit buses, we are currently organized around three business lines, each of which addresses a critical component of the commercial vehicle electrification value proposition in a complementary and self-reinforcing manner:
Proterra Powered designs, develops, manufactures, sells, and integrates proprietary battery systems and electrification solutions into vehicles for global commercial vehicle original equipment manufacturer (“OEM”) customers serving the Class 3 to Class 8 vehicle segments, including delivery trucks, school buses, coach buses, construction and mining equipment, and other applications.
Proterra Transit designs, develops, manufactures, and sells electric transit buses as an OEM for North American public transit agencies, airports, universities, and other commercial transit fleets. Proterra Transit offers an ideal venue to 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.
Proterra Energy provides 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.
The first application of Proterra Powered’s commercial vehicle electrification technology was through Proterra Transit’s heavy-duty transit bus, which we designed from the ground up for the North American market. Proterra Powered has partnered with eight OEMs, including Thomas Built Buses (a subsidiary of Daimler Trucks North America LLC), Freightliner Custom Chassis Corporation (a subsidiary of Daimler Trucks North America LLC), Van Hool NV, Optimal Electric Vehicles LLC, BusTech Pty Ltd. Komatsu Ltd., Lightning eMotors, Inc., and Volta Trucks Ltd. in the school bus, step-van, motor coach and double-decker transit bus, shuttle bus, international transit bus, construction and mining and last-mile delivery vehicle markets, respectively. Through June 30, 2021, Proterra Powered has delivered battery systems and electrification solutions for 186 vehicles to our OEM partner customers.
In addition, Proterra Energy has established itself 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
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meeting their logistical constraints and continuous service requirements. As of June 30, 2021, we had installed approximately 55 MW of charging infrastructure across more than 600 charge points throughout North America.
PROTERRAHISTORY1B.JPG
Through June 30, 2021, 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 and Proterra Energy to grow into a significantly larger portion of our overall business and generate a greater portion of revenue. Through June 30, 2021, our chief operating decision maker, the Chief Executive Officer, reviewed financial information presented at the entity level for ongoing operations and for internal planning and forecasting purposes, and we have a single reportable segment.
Proterra Powered’s strategy is to leverage Proterra Transit’s success in the electric transit bus market to showcase the performance of our technology and demonstrate a strong track record of range and reliability in order to provide our battery systems and electrification solutions to other commercial vehicle segments. We believe our success in the transit bus market
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using our battery systems and electrification solutions to power heavy-duty vehicles with faster acceleration than a diesel-powered bus up steep hills, all while maintaining a rigorous regular schedule of operation with little tolerance for error, helps demonstrate the broad applicability of our technology to other commercial vehicle segments with similar requirements. We sell our electric powertrains 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 optimal electrification solutions for our customers, depending on their vehicle requirements. We have entered into supply agreements for our battery systems and other technology components with Daimler Trucks North America LLC for electric school buses and delivery trucks, with Van Hool for electric coach buses and double decker coach buses, with Bustech Pty Ltd for an Australian electric transit bus, with Optimal, Inc. for an electric shuttle bus, and with Lightning eMotors, Inc. for an electric transit commercial van. We have also entered development agreements with Komatsu Ltd. for excavators and with Volta Trucks Ltd. for a Volta Zero urban delivery vehicle. We intend to continue to expand our strategic collaborations to develop and sell battery systems and electrification solutions across the commercial vehicle market.
Enhanced by Proterra Powered’s high performance battery systems and electrification solutions and our purpose-built transit bus vehicle designed to optimize power, weight, and efficiency, Proterra Transit has delivered more than 50% of all the electric transit buses in North America between 2012 and 2019. 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, as well as airports, universities, hospitals, and corporate shuttles. As of June 30, 2021, there are, in aggregate, more than 25,000 buses in operation at fleets that are mandated to convert to 100% zero-emission by 2040, 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 strategy is to maintain the No. 1 market share of the North American electric transit bus 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 700 vehicles on the road which have accumulated more than 20 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 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 have significant manufacturing capacity already in place and at scale with approximately 350,000 square feet of manufacturing space across three facilities in two states. In City of Industry, California, we operate a battery production facility as well as a bus manufacturing facility. We also operate a battery production facility in Burlingame, California. Our largest bus manufacturing facility is located in Greenville, South Carolina. Battery manufacturing capacity at our City of Industry facility, once fully staffed on a three shift structure, is 675 megawatt-hours (“MWh”), sufficient to supply batteries for both our total bus manufacturing capacity of 680 transit buses across our two bus assembly facilities in Greenville, SC and City of Industry, CA, as well as more than 350 MWh of Proterra Powered batteries for third-party customers, equivalent to 1,500 school buses and/or delivery vehicles 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
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architecture of our battery modules, we manufacture our battery packs in two widths and heights, various lengths ranging from 3-feet to 9-feet, and four different voltages. As we increase our production volumes, 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. We currently have sufficient capacity to fulfill our current backlog and anticipated near-term growth.
For the six months ended June 30, 2021 and 2020, our total revenue was $112.5 million and $95.3 million, respectively. We had a gross profit of $2.2 million and $4.5 million for the six months ended June 30, 2021 and 2020, representing a gross margin of 2% and 5%, respectively. We have also 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 $57.0 million and $44.3 million for the six months ended June 30, 2021 and 2020, respectively.

Key metrics and select financial data
Deliveries
We delivered 102 and 89 vehicles in the six months ended June 30, 2021 and 2020, respectively. We delivered battery systems for 56 and 42 vehicles in the six months ended June 30, 2021 and 2020, respectively.
Deliveries is an indicator of our ability to convert awarded orders into revenue and demonstrates the scaling of our operations. Vehicles delivered represents the number of buses that have been accepted by our Proterra Transit customers during a period. Customers will accept a bus when they determine the bus meets their service requirements. Battery systems delivered represents the battery systems 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 batteries 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 sold during the period or other services provided in addition to the hardware delivered.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we use to evaluate our ongoing operations and for internal planning and forecasting purposes, because, among other reasons, it eliminates the effect of financing, non-recurring items, capital expenditures, and non-cash expenses such as stock-based compensation and loss (gain) on valuation of derivative and warrant liabilities. We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Three Months Ended
(in thousands) June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020
Adjusted EBITDA Reconciliation:
Net loss
$ (189,027) $ (52,162) $ (32,623) $ (46,860) $ (22,699) $ (24,825)
Add (deduct):
Interest expense, net
29,129  8,797  8,849  5,198  727  639 
Provision for income taxes
—  —  22  —  —  — 
Depreciation and amortization expense
3,978  3,759  4,043  3,696  4,091  3,706 
Stock-based compensation expense
5,090  2,997  2,731  2,680  2,446  2,425 
Loss (gain) on valuation of derivative and warrant liabilities
129,789  16,321  (6,072) 19,061  —  — 
Asset impairment charge
—  —  121  —  —  — 
Adjusted EBITDA
$ (21,041) $ (20,288) $ (22,929) $ (16,225) $ (15,435) $ (18,055)

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Business Combination
On June 14, 2021, we consummated the transactions contemplated by the Agreement and Plan of Merger, dated as of January 11, 2021 (the “Merger Agreement”), by and among ArcLight Clean Transition Corp. (“ArcLight” and, after the Domestication as described below, “Proterra”), a Cayman Islands exempted company, Phoenix Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of ArcLight (“Phoenix Merger Sub”), and Proterra Inc, a Delaware corporation (“Legacy Proterra”). As contemplated by the Merger Agreement, on June 11, 2021, ArcLight filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which ArcLight was domesticated and continues as a Delaware corporation (the “Domestication”). Further, on June 14, 2021, as contemplated by the Merger Agreement, Proterra consummated the merger contemplated by the Merger Agreement, whereby Phoenix Merger Sub merged with and into Legacy Proterra, the separate corporate existence of Phoenix Merger Sub ceasing and Legacy Proterra being the surviving corporation and a wholly owned subsidiary of Proterra (the “Merger” and, together with the Domestication and the other transactions contemplated by the Merger Agreement, the “Business Combination”).
In addition, pursuant to subscription agreements entered into in connection with the Merger Agreement, certain investors purchased an aggregate of 41,500,000 shares of Proterra common stock (the “PIPE Investors”) concurrently with the closing of the Business Combination (the “Closing”) for an aggregate purchase price of $415,000,000 (the “PIPE Financing”).
We received $649.3 million in cash net proceeds upon Closing to fund our growth initiatives, including research and development and our next-generation battery program.
Key factors affecting our performance
COVID-19 Pandemic:
The outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has 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. Our manufacturing operations, and our transit agency customers, have been designated as an “Essential Business” under applicable public health orders. We made adjustments to our business operations and have continued to operate with limited interruptions since March 2020 with no material adverse impact to our operations, financial position, or liquidity through June 30, 2021. While the COVID-19 pandemic is currently expected to continue to have an impact on our results of operations, financial position, and liquidity, if the outbreak, and related shutdowns, logistics delays, part shortages, production inefficiencies or extended customer order and acceptance processes, are prolonged or worsen, including as a result of variant strains of the virus, 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, and electric transit buses, to new and existing customers. We have had initial success with Proterra Powered establishing eight strategic partnerships and with Proterra Transit selling electric transit buses and chargers to more than 140 customers. 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. 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. If we fail to make the right investment decisions in our technology and electrification solutions, including our battery systems and electrification and charging solutions, if customers do not adopt our technology or our products and services, or if our competitors are able to develop 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
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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 launched two new manufacturing facilities in 2017 and a new battery manufacturing facility in 2020. 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. By reducing material costs, increasing facility utilization rates and improving overall economies of scale, we can reduce prices while maintaining or growing gross margins of our products to improve customers’ total cost of ownership and help accelerate commercial electric vehicle adoption. Our ability to achieve our cost-saving and production-efficiency objectives could be negatively impacted by a variety of factors including, among other things, lower-than-expected facility utilization rates, manufacturing and production cost overruns, increased purchased material costs, and unexpected supply-chain quality issues or interruptions. If we are unable to achieve our goals, we may not be able to reduce price enough to accelerate commercial vehicle electrification and our cost of goods sold and operating costs could be greater than anticipated, which would negatively impact gross margin and profitability.
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 adopted a state-wide mandate, the Innovative Clean Transit Rule, mandating transit agencies to commit to purchasing zero-emission buses starting in 2029. The American Jobs Plan, initiated as an infrastructure bill in March 2021, could also provide additional funding for electrification across many vehicle categories although its final terms, passage and timing are uncertain. 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, 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 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. In each of the last two years, we have acquired, on average, 12 new customers who partnered with us to apply for competitive grants through the Low or No Emission Vehicle Program. 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 continued availability of government funding for our customers to help fund purchases of our electric transit buses and battery systems will remain an important factor in our company’s growth prospects.
Components of results of operations
Revenue
We derive revenue primarily from the sale of vehicles, the sale of battery packs and powertrain systems, the sale and installation of charging systems and related equipment, 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 packs and powertrain systems as well as sales and installation of charging systems. We generally recognize product revenue from
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contracts with customers for the sales of our vehicles once we deliver a vehicle to a customer. A vehicle is considered delivered once a customer has accepted it. Acceptance generally occurs once the customer has completed its inspection of the vehicle and determined it to be operating as defined in the applicable contract. Revenue from the sale of battery packs and powertrain systems is typically recognized upon shipping. Revenue from sales and installation of charging systems is typically 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. Product revenue also includes revenue from leasing vehicles and charging systems under operating leases. Revenue from operating lease arrangements is recognized ratably over the life of those contracts. The amount of product revenue we recognize in a given period depends on the number of vehicles accepted in a given period and on 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.
For a description of our revenue recognition policies, see the section titled “— Critical Accounting Policies and Estimates.”
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 we sell more vehicles and charging systems. As we grow into our current capacity and execute on cost-reduction initiatives, we expect our product cost of goods sold as a percentage of revenue to decrease over time.
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.
Because purchased materials comprise more than 50% of cost of goods sold, lowering our bill of materials cost is our most critical cost reduction initiative. Bill of materials cost reduction is a cross-functional effort involving engineering, supply chain, manufacturing, and finance. These cost-reduction efforts have yielded improvements in bill of materials costs since 2018, and we have identified additional opportunities to address cost reduction in the near and medium term.
Gross profit and margin
Gross profit is total revenue less total cost of goods sold. Gross margin is gross profit expressed as a percentage of total revenue. Our gross profit (loss) and margin may 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 acceptance, 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.
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. Through June 30, 2021, we have expensed certain software development costs related to our fleet
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and energy management platform as incurred because technological feasibility has not been fully achieved. 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 transitioning to, and 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.
Loss on valuation of derivative and warrant liabilities
Loss on valuation of derivative and warrant liabilities relates to the changes in the fair value of derivative and warrant liabilities, which are subject to remeasurement at each balance sheet date.
Other expense, net
Other expense, net primarily relates to currency fluctuations that generate foreign exchange gains or losses on invoices denominated in currencies other than the U.S. dollar, sublease income, and other non-operational financial gains or losses.
Provision for income taxes
We are subject to income taxes in the United States and certain states, but due to our net operating loss position, we have not recognized any material provision or benefit through June 30, 2021.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. We have established a full valuation allowance to offset our U.S. net deferred tax assets due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.
As of December 31, 2020, we had U.S. federal net operating loss carryforwards of $454.6 million, and state net operating loss carryforwards of $317.8 million. The federal net operating loss carryforwards generated prior to 2018 will begin to expire in 2030, and the federal net operating loss carryforwards generated since 2018 do not expire. The state net operating loss carryforwards will begin to expire in 2023. Also, as of December 31, 2020, we had U.S. federal research and development tax credit carryforwards of $2.0 million, and state research and development tax credit carryforwards of $1.2 million. The federal research credits begin to expire in 2037, and the South Carolina research and development tax credit carryforwards begin to expire in 2027. California state research and development tax credit carryforwards have no expiration date. Our ability to use net operating loss carryforwards and other tax attributes to reduce future taxable income and liabilities may be subject to limitations based on possible ownership changes in the past or in the future, including as a result of the Business Combination. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards or other pre-change tax attributes to offset U.S. federal and state taxable income may still be subject to limitations, which could potentially result in increased future tax liability to us. Additionally, a challenge by a taxing authority, a change in our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions may cause actual financial results to deviate from previous estimates.
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United States federal legislation affecting the tax laws was recently enacted in (i) December 2017 through the Tax Cuts and Jobs Act (the “TCJA”), (ii) March 2020 through the Families First Coronavirus Response Act, (iii) March 2020 through the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and (iv) in December 2020 (Consolidated Appropriations Act, 2021).
We continue to examine the impact the TCJA and CARES Act may have on our business. The TCJA is a far-reaching and complex revision to the U.S. federal income tax laws with disparate and, in some cases, countervailing impacts on different categories of taxpayers and industries, and will require subsequent rule making and interpretation in a number of areas. The long-term impact of the TCJA on the overall economy, the industries in which we operate and our and our partners’ businesses cannot be reliably predicted at this stage of the new law’s implementation. There can be no assurance that the TCJA will not negatively impact our operating results, financial condition, and future business operations. The estimated impact of the TCJA is based on our management’s current knowledge and assumptions, following consultation with our tax advisors. Because of our valuation allowance in the U.S., ongoing tax effects of the Act are not expected to materially change our effective tax rate in future periods.
In response to the COVID-19 pandemic, California’s Legislature passed Assembly Bill 85 (“A.B. 85”), which suspends the use of net operating losses for tax years beginning in 2020, 2021, and 2022 for taxpayers with taxable income of $1.0 million or more before an application of net operating loss. A.B. 85 includes an extended carryover period for the suspended net operating losses with an additional year carryforward for each year of suspension. A.B. 85 also limits the utilization of business incentive tax credits for taxable years 2020, 2021, and 2022, requiring that taxpayers can only claim a maximum of $5.0 million in tax credit on an aggregate basis.
However, since we maintain a full valuation allowance against these assets, this did not have a material impact on our operating results or financial condition.
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) 2021 2020 2021 2020
Product revenue
$ 56,072  $ 40,448  $ 107,494  $ 91,111 
Parts and other service revenue
2,430  1,612  5,014  4,148 
Total revenue
58,502  42,060  112,508  95,259 
Product cost of goods sold
54,948  38,327  105,479  86,556 
Parts and other service cost of goods sold
2,241  1,391  4,845  4,183 
Total cost of goods sold (1)
57,189  39,718  110,324  90,739 
Gross profit (loss)
1,313  2,342  2,184  4,520 
Research and development (1)
10,315  8,300  20,015  16,904 
Selling, general and administrative (1)
20,744  15,494  39,204  31,925 
Total operating expenses
31,059  23,794  59,219  48,829 
Loss from operations
(29,746) (21,452) (57,035) (44,309)
Interest expense, net
29,129  727  37,926  1,366 
Loss on valuation of derivative and warrant liabilities
129,789  —  146,110  — 
Other expense, net
363  520  118  1,849 
Loss before income taxes
(189,027) (22,699) (241,189) (47,524)
Provision for income taxes
—  —  —  — 
Net loss
$ (189,027) $ (22,699) $ (241,189) $ (47,524)
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__________________
(1)Includes stock-based compensation as follows:
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Cost of goods sold
$ 270  $ 228  $ 546  $ 453 
Research and development
545  350  1,058  722 
Selling, general and administrative
4,275  1,868  6,483  3,696 
Total stock-based compensation expense
$ 5,090  $ 2,446  $ 8,087  $ 4,871 
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Product revenue
96  % 96  % 96  % 96  %
Parts and other service revenue
Total revenue
100  100  100  100 
Product cost of goods sold
94  91  94  91 
Parts and other service cost of goods sold
Total cost of goods sold (1)
98  94  98  95 
Gross profit
Research and development (1)
18  20  18  18 
Selling, general and administrative (1)
35  37  35  34 
Total operating expenses
53  57  53  52 
Loss from operations
(51) (51) (51) (47)
Interest expense, net
50  34 
Loss on valuation of derivative and warrant liabilities
222  —  130  — 
Other (income) expense, net
— 
Loss before income taxes
(324) (54) (215) (50)
Provision for income taxes
—  —  —  — 
Net loss
(324) % (54) % (215) % (50) %
__________________
(1)Includes stock-based compensation expense as follows:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
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, 2021 and 2020
Revenue
Three Months Ended June 30, $ % Six Months Ended June 30, $ %
(dollars in thousands) 2021 2020 Change Change 2021 2020 Change Change
Product revenue
$ 56,072  $ 40,448  $ 15,624  39  % $ 107,494  $ 91,111  $ 16,383  18  %
Parts and other service revenue
2,430  1,612  818  51  5,014  4,148  866  21 
Total revenue
$ 58,502  $ 42,060  $ 16,442  39  % $ 112,508  $ 95,259  $ 17,249  18  %
Total revenue increased by $16.4 million in the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase was primarily due to a $16.0 million increase from buses, charging systems and installation. We delivered and our customers accepted 54 buses in the three months ended June 30, 2021 as compared to 36 buses accepted in the three months ended June 30, 2020. The three months ended June 30, 2020 were impacted by COVID-19 as we slowed
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production to mitigate for any potential supply risks or impacts to our employees. We delivered battery systems for 30 and 38 vehicles in the three months ended June 30, 2021 and 2020, respectively. While we delivered fewer battery systems, revenue for these systems increased slightly due to product mix.
Total revenue increased by $17.2 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase was primarily due to $14.1 million increase from buses, charging systems and installation, and $3.1 million from battery systems. We delivered and our customers accepted 102 buses in the six months ended June 30, 2021 as compared to 89 buses accepted in the six months ended June 30, 2020. We delivered battery systems for 56 and 42 vehicles in the six months ended June 30, 2021 and 2020, respectively. The battery systems revenue increased due to increased volume and product mix.
Cost of goods sold and gross profit
Three Months Ended June 30, $ % Six Months Ended June 30, $ %
(dollars in thousands) 2021 2020 Change Change 2021 2020 Change Change
Product cost of goods sold
$ 54,948  $ 38,327  $ 16,621  43  % $ 105,479  $ 86,556  $ 18,923  22  %
Parts and other service cost of goods sold
2,241  1,391  850  61  4,845  4,183  662  16 
Total cost of goods sold
57,189  39,718  17,471  44  110,324  90,739  19,585  22 
Gross profit
$ 1,313  $ 2,342  $ (1,029) (44)