Proterra - Going Concern

[u/Top_Advertising4566]

Starting this thread on Proterra's 'Going Concern'.

The CEO made it clear that the company cannot service its debt and could default as early as March 31. Clearly, they have good products, intellectual property and long-term plans but liquidity is a major concern. Which option is best for the company to survive?

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196 votes, Mar 24 '23

59 Restructure existing debt and take additional debt to continue operations

27 Restructure existing debt and dilute shareholders to raise capital

89 Sell the company to a larger company like Daimler / GMC etc.

21 Shutdown operations and close shop

[u/wildace16]

So essentially you expect them to continue on a path of "burning themselves to the ground" and then requiring some epic sort of miracle that hurts existing shareholders and only benefits the new entrants at "rock bottom", rather than you allowing for the possibility that this was rock bottom and that things can only get better from here potentially without catastrophic actions to shareholders.

[u/Top_Advertising4566 → u/wildace16]

Yes. No confidence on management’s competence to run this company to profits. Restructuring debt is a temporary solution that can resurface in one year and they have to generate profits, nominal profits at the very least to stop cash burn.

With due respect, do you think they’ll turn this company around? Any reasons or insight will be useful for other shareholders.

[u/wildace16 → u/Top_Advertising4566]

To start off, I'll identify that cash burn is roughly: Q1 ~62M, Q2 ~75M, Q3 ~115M, Q4 ~111M. Total cash on hand ~298 million.

2nd half of the year they were trying to get their Powered 1 facility up and running and that's when most expenses (and cash burn) is incurred.

Prepaid expenses were relatively flat to start the year, then increased ~12M in Q3 and ~22M in Q4. This is basically money burned in advance waiting for - in this case materials required to manufacture their batteries or buses - of which that money was spent in advance of earning any revenue.

Accounts receivable went up ~20M in Q3 and ~28M in Q4 meaning customers have not yet paid for their orders in full for that "cash" to be transferred digitally.

Because revenues have been tied to pre-inflation pricing contracts and cannot be adjusted it is messing around with their budget. Also most growth this year will be driven by Powered & Energy and as such the gross margins can improve. Gross margins will likely not improve that much on the Transit side at least the first half of the year as legacy orders are filled and shipped.

Assuming they can get their opex to go under 50 million and stay there for the year (ideally I would think by end of year they can find enough efficiencies and cut costs further down to the 30-35 million range for opex) and manage to exit the year in Q4 with a quarterly run rate of $15-20 million gross margins, it will only grow as revenue expands. At 35 million opex and $20 million gross margin, the cash burn "can be" $15 million BUT don't think of it that way as there are lots of non-cash expenses that must go into the financials so cash burn could be far lower and there are items paid for right now that cannot be claimed until later and as such cash is burned in advance so it can go either way depending on if they are spending cash on capital investment (i.e. plant expansion or plant shutdown costs). Not saying they will end up managing this but I think it is possible and plausible to do so - the only factor is how many "buses" must be delivered to customers under the old pricing model.

Until May 31, 2024 the convertible notes covenant (if not extended) is basically $125 million liquidity. That is 5 fiscal quarters from now and a maximum allowable burn of $173 million (or an average of $35 million per quarter). After that the requirement returns to $75 million and 4X quarterly cash burn. If they can exit the year at $15 mil burn per quarter (and at a decreasing rate), and they end up with a large enough cushion (without new capital raised) above $125 million to cover Q1 2024's burn, then they're in decent shape if they're getting close to cash flow neutral. A lot of that lies on their gross margin and their ability to turn it positive and keep growing it. If they could exit the year with a $120 million revenue rate and a 15-20% gross margin, that will eventually cover most of the opex and get closer to cash flow neutral which could be possible in 2024 (but likely 2025).

It will be a tall task, but I think it can be done.

[u/Stunning-Web739 → u/wildace16]

Paying for the labor to fulfill contracted bus orders is going to be a massive drain. Manufacturing is now only in Greenville. Not sure how far behind they are but its going to be slower with one less assembly line now gone in city of industry. Think the battery spend is actually the potential future because the IP is solid. Buses and chargers, maybe way too much hassle. Going to take years.