Lightning eMotors, Inc.

Thank you, operator and thank you, everyone for joining us today. Hosting the call today are Lightening's Co-Founder and CEO, Tim Reeser; Chief Revenue Officer, Kash Sethi; and CFO, Teresa Covington.

Ahead of this call, Lightning issued its second quarter 2021 earnings press release and presentation, which we will reference today. These can be found on the Investor Relations section of our website at lightningemotors.com.

On this call, management will be making statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of factors discussed in today's earnings news release, during this conference call or in our latest reports and filings with the Securities and Exchange Commission.

These documents can be found on our website at lighteningemotors.com. We do not undertake any duty to update any forward-looking statements.

Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the Company's second quarter 2021 earnings press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures.

With that, let me turn it over to Tim.

Thank you very much, Nick and good afternoon everyone. So today's presentation, we will be referring to the slides that were posted to the Investor Relations section of our website earlier this afternoon.

As this is our first earnings call since the closing of the business combination with GigCapital3 in May, I would like to start by thanking our employees for their contributions to Lightening's success. I would also like to thank shareholders for the patience and support towards the completion of the transaction.

Becoming a public company was an important milestone for Lightning and the transaction provided us with the capital needed to execute on our strategy and expand capacity to address an estimated $67 billion of total addressable worldwide market. Now turning to Slide 5 with today's agenda.

First, for investors not familiar with the Lighting story, start off by giving a brief introduction of the company and its market opportunities. Second, I will then highlight what differentiates us from other industry players and how we are adapting the challenges facing the industry and plan to execute on our vision.

Third, Kash will discuss our foundational agreement Forest River and provide an update on our backlog and pipeline. Ramping it up, Teresa will provide financial highlights from the second quarter and our 2021 financial outlook.

We will then hold a question-and-answer session. Moving to Slide 7, we founded Lightening in 2018 to address the lack of availability of hybrid and electric specialty commercial vehicles available to urban medium-duty fleets.

Today, Lightning eMotors is the only full range manufacturer of Class three to seven battery electric and fuel cell electric vehicles in the market including ambulances, shuttle buses, utility trucks and motor coaches. We have built a modular software and hardware architecture that allows us to serve this highly segmented and customized market with a cost-effective solution.

Turning to Slide 8, what separates us from our peers is that we deliver today purpose-built, in-the-end commercial electric vehicle solutions for fleets. In addition to full vehicles, we sell powertrain systems to vocational and commercial vehicle OEM's as well as the partners like ABC companies who install them and re-power applications.

Historically, our process began with a Ford, Hino, Isuzu or General Motors chassis, which are produced at high volumes with low differentiation and are certified for our customers. As we announced in earnings release, we have a path for addressing the industry chassis shortage with our own Lighting branded strip chassis and cab chassis products.

We then build out the battery electric and fuel cell electric powertrain systems, customized to each customer's vehicle, route and duty requirements. Next, we customize the design and software to fit the vocational requirements of each vehicle, a process that requires specialized software engineering and manufacturing skills that were not previously required with internal combustion vehicle manufacturing.

This high level of software and hardware customization is something that legacy OEM's have not historically performed or not well suited for and that is both of high value and necessary for the products and markets that Lightening serves. We integrate our proprietary data and analytics, hardware and software platform on every vehicle we make.

We've spent the last eight years developing and refining this industry-leading technology. Our customers and our fleet service teams receive data about their vehicles in real time, enabling actionable intelligence and helping to prevent or reduce downtime for their fleets.

Further, our software includes key locational attributes such as proprietary compliance reporting for HVIP, LCFS, CARB and other grant and subsidy programs as well as key efficiency and safety data. Our customers appreciate these software capabilities as evidenced by the 100% attach rate on every vehicle we have produced.

We charge customers a fee for these services, which provides a high margin monthly recurring revenue stream. Lightning offers a full suite of charging solutions to customers, including Level II and Level III Chargers, installation, permitting, LCFS monetization, software and support integration to complement their vehicle purchase It's important to note that although charging is often viewed as a commodity product, commercial fleets have very specialized needs and use cases that are very different from public charging businesses and we work with operators to tailor charging solutions to their unique requirements.

Finally, we wrap all these solutions together with customer financing. Although many fleet customers make extensive use of financing for the legacy internal combustion fleets, there is limited financing options available for electric vocational vehicles due to limited data on reliability and future residual values.

We see bundling financing and charging with the vehicle as an enabler to the vehicle sale and providing customers with a single end-to-end solution that enables them to recognize the TCO savings on a monthly basis. Now to Slide 9.

It is important to underscore the high level of customization enabled and required by our technology and demanded by our customers, is also what provides one of our competitive moats. Companies like GM and Ford are building trucks at high volumes and do not have a business model that supports manufacturing for the medium-duty segment.

Turning to Slide 10, despite our efforts to highlight our niche position in the EV space, I heard a lot of people say, hey it's a crowded market with many EV players having recently gone public. We want to differentiate ourselves, and it's important to say what we do, which is, we focus on urban medium-duty commercial zero-emission vehicles, which are currently being deployed and have been deployed for the last three years.

One of the things I like to say is we build be electric vehicles no one else is building and in fact, no one else wants to build. And you can see that in this chart.

While lightening segments have a large total addressable market, these individual segments between Class III and Class VIII are generally too small for major OEM's and are not targeted by most startups building highly-automated, low-customization production lines. Now moving to an overview of our supply chain partners and recent supply chain developments on Slides 12 and 13.

While we are experiencing a strong and growing product demand, supply chain issues have created temporary headwinds for our business. Although our Q2 revenue was constrained by drivetrain component deliveries, we were able to mitigate several other supply chain constructions and sell 37 vehicles and powertrain systems.

While we are working to remedy the supply chain disruptions through the technical and commercial validation of additional suppliers, further supply chain disruptions remain including battery and chassis shortages. Major chassis OEM's have surprised the industry by shutting down in July for a week or more.

it is important to note that all the revenue is being pushed to future quarters, we have not lost any sales due to the delays. But we aren't sitting idly by waiting for these supply chain problems to work themselves out.

We are in the final stages of negotiations and technical integration validation with one of the world's largest worldwide battery suppliers. We believe that our work with our battery suppliers may mitigate our supply chain constraints in 2022 and beyond.

Further, with the design of our first purpose building chassis, we are working on addressing the industry shortage with our own lighting branded strip chassis and cab chassis products that are not chip limited. While 2021 has been a challenging year.

We are thrilled with the demand outlook and are taking action to help address the supply chain issues, which we believe will allow us to fulfill customer demand and drive substantial vehicle sales and revenue growth in the years ahead. Moving to Slide 14.

I want to briefly mention our manufacturing capacities and plans. Lightning is in the unique position of having significant and capital-efficient manufacturing capacity online and running today with current facilities flexible lines and flex tooling to support up to 1,200 powertrain systems and complete vehicles per year.

We added an additional 100,000 square feet, nine months ago at our Loveland Colorado campus and are now procuring and installing the automation and tooling required to grow our capacity to 3,000 powertrain systems and complete vehicles for 2022. Not only we able to build this capacity with very light CapEx investment, we are also able to expand quickly due to our agile manufacturing approach and the fact that we don't build bodies are interiors, eliminating many of the heavy and long lead time CapEx investments.

We have first rights to the additional square footage needed on our one million campus to support a potential expansion at 20,000 powertrain systems and complete vehicles by 2024. And now I'll turn to Kash to provide an overview of recent customer wins in the order backlog and sales pipeline.

Thanks, Tim. I will begin on Slide 16.

First, we are very excited to sign a foundational strategic partnership agreement last week with Forest River, a Berkshire Hathaway subsidiary and North America's largest shuttle bus manufacturer Forest River is family of shuttle bus companies including popular brands like StarCraft, Global, Eldorado and Champion have a dominant market position selling over 10,000 units per year in the Class IV to VI shuttle bus space. Under this agreement, which has a potential value of up to $850 million, Lighting expects to build up to 7,500 fully-electric powertrains and provide charging products and services to Forest River over the next four and half years.

A factory-installed all in electric shuttle bus offering from Forest River is a game changer as we will leverage their decades of experience, relationships and brand reputation in this space. Forest River electric shuttle buses are being offered with various length and seating configurations supporting ranges from 80 to 160 miles on a single charge with the capability to recharge over a lunch break using Lightening's DC fast-charging solutions.

Lighting Energy will offer a comprehensive stooge of charging infrastructure related products and services to Forest River dealers and customers across the U.S. and Canada.

Lastly, we are happy to be building all electric vehicles today instead of only making plans for new products that won't be available for years. Manufacturing in this case has already begun and we expect to deliver the first batch of buses to dealerships by the end of this year.

This agreement has the potential to be the largest contract in the electric shuttle bus market and we look forward to working with Forest River and their dealer network in leading the industry towards a zero emissions future. Now, I would like to turn to Slide 17 to discuss our backlog and pipeline.

As of June 30, 2021, Lighting's order backlog included all electric commercial vehicles, all electric powertrain systems and charging systems of approximately 1,600 units, up 508% from the prior year period. To quantify that in dollars, that is $168 million versus $26 million in the prior year period.

The increase in backlog orders reflects robust demand for our all-electric trucks and buses, powertrain systems charging infrastructure products and services, telematics, analytics and other related accessories. Our sales pipeline at the end of the second quarter was $1.3 billion, which represents more than 500% growth since Q1, 2020.

Our pipeline is diversified with more than 200 deals in the works across several market segment. I expect this growth to continue in 2021 due to successful pilot deployments validating our technology in the field and expanding sales team now engaged in with a wider audience, new vehicle partnerships that unlock new market verticals for us in the commercial vehicle space and favorable news at the state and federal level that just broad support for commercial fleet electrification.

We see significant upside potential in the wide variety of funding programs now available across the country, including new programs that will come out as a result of the Biden infrastructure plan. We believe we are positioned nicely to capitalize on these programs and continue increasing our backlog and pipeline.

And with that, I will turn it over to Teresa to provide an update on Lighting's financial results and outlook.

Thank you, Kash. I will now provide some commentary on our second quarter results followed by our third quarter outlook.

Beginning on Slide 19, for the second quarter, we generated revenues of $5.9 million, which increased 580% from the year ago period, driven by an over 300% increase in vehicle and powertrain systems unit sales During the second quarter, Lightening sold 36 vehicles and one powertrain system compared to nine vehicles in the prior-year period. Cost of goods sold in the second quarter was $7 million compared to $1.4 million during the prior-year period, primarily due to an increase in revenues, partially offset by improved product mix.

As we ramp production. We expect to generate operating leverage as we benefit from higher volume, fixed cost leverage on labor, improve battery supply terms and operational efficiency.

SG&A in the second quarter was $16 million compared to $2 million in the prior-year period. The increase was driven by non-recurring professional cost of $9.1 million related to our business combination as well as planned increased head count to support our growing sales, backlog and production.

Research and development expense in the second quarter was $743,000 compared with $212,000 in the prior-year period, driven by increased spending on engineering to advance the development and design of new vehicle platforms, refine and improve our production processes, product testing and enhance our in-house engineering capabilities. Operating expenses in the second quarter were $16.8 million, compared to $2.2 million in the prior year period.

The operating loss was $17.9 million compared to $2.7 million in the prior year period. The adjusted operating loss was $8.7 million compared to $2.7 million in the prior year period.

Turning to our balance sheet, recall upon closing of the business combination in May, Lightening received approximately $217 million in net proceeds. As of June 30, 2021, we have cash and cash equivalents of $202 million.

As Tim mentioned earlier, we have a capital-efficient manufacturing process, leading to lower capital needs relative to many of our peers. Our full-year 2021 capital spending is expected to be in the range of $10 million to $12 million.

We ended the quarter with approximately 73.2 million shares outstanding. If all outstanding warrants were converted today, we would have approximately 97.6 million diluted shares outstanding, not counting and employee stock options and the convertible note payable.

Moving to our outlook. Primarily because of unexpected chassis production disruptions and COVID related delays, we are withdrawing our prior guidance for 2021.

Although we no longer expect to meet the full-year guidance and our only providing guidance for one quarter out at this time, it's important to note that no orders have been canceled, and we expect to fulfill those orders in future quarters. As Tim noted earlier, we are taking steps to mitigate the supply chain issues through securing new drivetrain and battery suppliers as well as the development of the new Lightning eChassis.

Although supply chain has been the primary impact to our business, we are also seeing order push outs due to the delta variant and COVID resurgence resulting in delays in return to work, which is pushed out orders for campus coach and shuttle buses. Now, I want to say a few words about our outlook for the third quarter.

Please turn to Slide 20. Based upon current market conditions, we currently expect vehicle and powertrain system sales to be in the range of 28 to 40 units, revenue to be in the range of $4 million to $6 million, operating loss to be in the range of $12.5 million to $13.6 million and adjusted operating loss to be in the range of $12 million to $13 million.

A reconciliation of GAAP operating loss to the adjusted operating loss can be found on Slide 21. Now, I will turn it back over to Tim for closing remarks.

Thank you, Teresa. Before I wrap it up, I would like to summarize why we are so excited about the opportunities we have ahead of us.

Number one, we have strong and growing customer demand visible both from what we have in contracted what we have in contracted revenue in Orders and also from our growing sales pipeline that is now beginning to translate into both new and repeat orders. In addition, our foundational agreement with Forest River has significant commercial potential in the years ahead.

Number two, operating in multiple large niche markets requiring significant customization and multistage go-to-market approaches, Lightning has a meaningful head start and few competitors in the areas where it operates. Three, we believe new federal and state regulations including the Biden infrastructure plan, corporate mandates focused on zero emissions and rapidly falling total cost of ownership for commercial EV's, provide significant tailwinds in the years ahead.

And finally, while 2021 will prove to be a transition year in terms of profitability, we are working on diversifying our supply chain, focusing on operational excellence and making progress on our capacity expansion plans, which we believe will be key factors that allow the company to enhance its long-term margins. Thank you for your time today.

Now we'll open up the line for questions.

Thanks so much guys. As you're looking at your customer conversations and obviously the Forest River and that was a big one, could you speak to the advantage you guys have or how important it is that you're on your third generation of vehicles and the drivability elements of those vehicles and being able to close those customers.

Thank you, Colin. Great to hear from you again, and obviously you have some unique context having driven one yourself, not too long ago.

So, appreciate the question and the thought around it. Obviously, we put a lot of weight on the fact that the customers have driven the vehicle, seen the vehicles and the impact that has, and I think most people in the electric vehicle space today would say that, driving is believing, is one of the statements you see a lot of the reason why is they obviously are quieter and smoother.

But in the fleet vehicle space where customers are very concerned about reliability, up time is probably the number one concern, even more important than money or total cost of ownership. We have to have customers who have faith and believe that we have reliable vehicle.

So the fact that we've had vehicles out there for three years, the fact that these customers have had the opportunity to build faith in what we've done to get used to it, to understand and to know that we have service those vehicles well, that we respond well when they call with questions, all of those are part of the maturing process that we've been through and the relationship building and trust building process we've been through with customers that certainly gives us a significant leg up. And I think that the validation of that is when customers place repeat orders and we're seeing that, we have seen that, we've announced a few repeat orders with folks like DHL and now Forest River and others.

And so, I think that certainly validates the point that how key it is to customers to know that we have reliability and that we already have a service network in place.

That's super helpful. And then, just as you look at trying to manage the supply chain issues, which even having a balance sheet, we're putting deposits down, securing things, what are the most effective levers you're finding in terms of being able to procure components - secure as much supply as you can that, having some of those orders with some branding customers that putting deposits down, as you go from relatively modest volumes into much higher volumes that it's going to be something you guys are need to manage really effectively, so just want to understand the dynamics around your leverage from a purchasing perspective that is actually function working might not again - get component in.

Yes, Colin, I think - there is one other thing I'll point to and then come back to your point that I think is relevant. But one of the things we are finding is giving us leverage and a leg up is the reputation we now have from an engineering standpoint.

So in the past, one of the things we find with suppliers is they perceive a lot of risk with companies in terms of, are we going to use their product correctly, are we going to make their product look good. And you can imagine that the risk, if you think of yourself at any one of our supplier standpoint of placing their product with somebody who doesn't have the engineering prowess or experience to integrate the software correctly, to integrate the hardware correctly, to service that product correctly in the field and ensure everybody has a successful launch of these products.

So part of what we're finding is giving us a leg up right now is our engineering reputation of the fact that we've integrated these products for quite a while, we know the way they work, we already have prewritten the software and that certainly given many of our suppliers that kind of confidence they need to really make the investments in us and to trust the investments we're making in them. Then secondly, obviously, the second part to that is yes, now for the last three months, being a public company, so really only very recently, If we had the balance sheet to take advantage of being able to place larger orders.

But now, as you point out the third thing is having the anchor customers that these suppliers believe and understand that indeed, we're selling the product to a quality customer who is going to use the product in expected way and we have very reliable demand and demand that we can count on going forward in terms of ramping up. So I think all three of those things are aspects that are giving us confidence in our supply chain going forward and confidence that we can build the kind of relationships and the kind of agreements we need to ensure we have solid supply chain moving forward.

Excellent. Thanks so much.

Hi, good afternoon guys. Can you hear me okay?

Can hear you well, Mike. Great to hear from you.

It's been a little while since we've seen you in person but marvelous to hear from you and congrats on your new role there at DA.

Thank you, so much. I wanted to ask question first on the Forest River deal.

Can you give us some sense as to how you arrived at the $850 million? Was it some back and forth as to how much Forest River topic itself?

is it their best estimate as to what they can sell or is there some inventory that gets picked up first before you can start shipping in large quantities there?

Kash, do you want to take this one?

Yes, absolutely. So we - Forest River is like we have said in this space, they understand what the demand is out there for electric shuttle buses.

They've been engaging with the market for a few years, so have a lead. So yes, we came together and determined how many units the market need in the short term and the long term, what kind of adoption can be drive by committing to higher volumes to our suppliers, getting the price down and making the total cost of ownership attractive to the customers.

So, it is absolutely a number we came up with them together.

Okay, great. And I also wanted to ask about your purpose-built chassis that's coming up here, can you give us some details, what size of class vehicle Is it, what the use case might be, passenger cargo, and maybe even if you have a date for the launch of that product?

Certainly. So I have a, new person I'm going to introduce, who's in the room with me, Bill Kelley.

Most of you know him, but I know you didn't speak on the earlier remarks, but this has been a project Bill has been driving for a while. So I'll let Bill answer that question.

Thank you, Tim. We see the purpose-built chassis expanding across two classes of vehicles and we're not really ready to divulge the particulars there, but we believe that because of the modular nature of our electrification solution, if we can manage that to this to this purpose-built chassis, we should be able to serve a fairly broad market with a very simple design - simple and elegant design.

And that process, as Tim mentioned, it's been ongoing now for quite some time and we are very excited to see our first prototypes before the end of this year.

Okay. If I can throw one more in there about your outlook for this quarter, do you have the ability to do any additional beyond this quantity next quarter, In the fourth quarter, or is it 20 to 40 vehicle range, you've got this quarter, kind of this constraint level that might just be stuck for a while?

So we still expect and have been all years - I think the terminology we've used is, we are very Q4 weighted and historically Q4 has always been when we've manufactured the most, also when we receive the most new orders. So that's usually been the case in the past.

What is making Q4 difficult in terms of visibility this year is primarily the chassis constraint. So several of our chassis providers have pulled their delivery date guidance and that's why we've made the decision to pull guidance on Q4 until we can get their guidance back on when they're actually going to deliver chassis.

We are - from a manufacturing scale, we have our ready to build vehicles and in fact will partially build everything we can build. So the assembly lines still going to be moving at full pace.

Many of the things we're progressing on in terms of reductions in cost, reductions in labor, additional automation, all of those things are still at full pace. So the only thing we are concerned about are - constrained on is chassis.

We don't know yet though, Mike, whether that chassis constraints will be as limited as Q3 is right now or whether we'll see it start to open back up in Q4. We do know that many of the factories are back running after having some shutdowns due to chip shortages, but obviously, anybody's guess on what happens with COVID but I'm always the optimistic guy on the phone, and Teresa is here to provide the appropriate financial balance to what I say.

but I'm hopeful that our chassis manufacturers will be able to pick back up and give us better delivery guidance for Q4 and that would certainly give us an opportunity to make more in Q4 than our current constraints in Q3.

Okay, great, thanks so much. I'll pass it along.

Thanks, good afternoon. Tim, can you maybe give us some sort of roadmap on how you're thinking about supply constraints easing for you over say a longer period.

Maybe, not just for Q4, getting a little bit better, but how things normalize, say over, let's call it 12 to 24 months. What happens first, what happens second to start to alleviated and where do you feel that you will be down the road on these things where we can see significant bottlenecks relieved.

Thanks and then I have a follow-up.

Certainly Steven. Thank you for the time.

Great to hear from you again as well. So we certainly look out and the impacts obviously everybody seen on the chip shortage that have impacted chassis and some other components, I think from our standpoint, we expect those to be partially alleviate and we've been told by some of those chassis providers they expect to have either redesigned in different chips or have a different plan for how they're going to start meeting their expectations starting, Q2 of next year.

So that's the kind of input we've had to this to the - what we're hearing and then in the same things as we've talked about beginning to scale up, our own Lightening eChassis to also provide additional supply of the eChassis into mid and second half of 2022. We look at the other major constrained item in batteries in the same way.

We are working with additional battery suppliers and each of our battery suppliers has made real progress in now guaranteeing or pulling down some of their supply constraints. And so we feel that our suppliers are doing the right things to improve this in 2022 and we're certainly doing not only working with those suppliers to help them do the right things, but also adding additional suppliers and adding is in the case of the chassis and other things, some of our own new vertical integrated product.

So all of those variables, together, our expectation is we get into 2022 in a much better position - certainly by the second half of 2022, a much better position. Is that going to free up in Q2 of 2022?

I think we could all debate that was quite lively. And I don't know the answer on that today.

But certainly my belief is it will begin to get better into Q4 and then again in to Q1 and Q2 assuming as well, it will all put out the - we all thought COVID was going away and we could not have to talk about it during the summer, and then we've obviously seen the delta variant kick back up and impact some of our suppliers. So that, those kinds of risks aside, we feel very good about the things we are doing as well as the things our suppliers are doing put us all in a much better position in 2022.

Great, that's really interesting road map, helps a lot. And then just as a follow-up on the e-chassis - I thought - one, can you sort of remind us on what you need to do to scale it up internally and then secondly, I thought I heard you mentioned that it would not be impacted by the current chip constraints and I was wondering if you could just be more specific on that.

Thank you.

Yes. So I'll answer the first one, then I'll ask Bill to help me with the second one on some of the things that.

One thing to keep in mind with straight strip chassis different from - many of the chassis we buy today have components on it that we in the end, don't necessarily need and some chips that we don't necessarily need. And secondly, when we're designing and working with our own e-chassis, we have an option of putting in chips we can get today.

So we have a few more options when we think about our own chassis versus buying an off-the-shelf chassis from somebody else who probably can't change overnight. But it's important to note the chassis itself, when it doesn't have a transmission, controller, or navigation systems or some of these other things that we often get whether we want it or not on chassis today, those things don't exist in the simplest form of the e-chassis.

So it's quite frankly just easier to - we don't have the bottlenecks that other chassis have, make in own chassis and secondly, we can design it with few of those bottlenecks out of the gate, which is obviously a big benefit in many aspects of the e-chassis. So with that, I'll ask Bill maybe to elaborate a bit on some of what he sees as we look at how do we scale it

Yes, probably the most intriguing aspect of the e-chassis to me is the notion that because we have a little more freedom with the architecture, we can make the purpose-built chassis configuration very friendly to many different specialty vocations. So today, we do utilize chassis that we get from the traditional OEM's and we've worked it out I think quite nicely, but we just see a lot more opportunity now because the vocational vehicles have very unique requirements and the shape and size of this e-chassis will be highly aligned with their business interests.

Great, that's helpful. Thank you.

Hi, Tim. Just want to apologize, I did jump on late, so if you covered any of this, never mind, but a couple of questions just on the sales channel as it exists today.

First, where the leasing program now? I'm assuming there wasn't much of that accounted for second quarter sales.

And then the HVIP what you saw coming out of that at least the first half of the HVIP program, how influential that is and just tying into that, the new chassis. Is there I guess, we're going to see a break point where these Forest River type deals drive the business versus HVIP program, which has historically driven the business.

Curious if, with the new chassis, if that has to be - if you're HVIP offerings have to be updated for that?

Certainly, Subash. Great to hear from you.

I'm excited to hear, but I think it's been a month or two since you were here, so excited to have a chance to chat with you a bit. I'll start with the last question, which I think is - well, let me start with the leasing question, just real quick, and then I'll turn some of the HVIP question over to Kash as well.

Leasing has been, so the first one is, it's been our plan to not have leasing on our balance sheet. So we're working with partners off balance sheet to do leasing for partially for the reason you point out that we want to do full revenue accounting and so by not having it in our balance sheet and working with partners on that, we can have full revenue accounting, which obviously simplifies many aspects of the business and simplifies the analyst's job on the business as well.

So we have not had any significant leasing business on the - on our books and we aren't planning to at this point, we'll do it off balance sheet. So, but the work on making sure we have offerings for our customers in the finance space continues, both with several different partners and also as we look at internally, how do we market it, how do we package it, what customers really need and require.

And then in the meantime, while all that's going on, we have done some already with some partners off balance sheet. So the activity is there, the value there, the scale-up's in the early stages, but it's our intention to keep it off our balance sheet, so that from a revenue recognition, it's fairly simple in that sense.

With HVIP, I very much like your thought there because we see it the same way that with these large deals, the cost come down to a point where the customers no longer need major government subsidy to make compelling purchases and so therefore get rid of some of the odd behavior that occurs when things enter wired government subsidy line. So that said, obviously, we've been an HVIP participant for quite some time and I'll let Kash speak a little bit to how we see the industry changing around HVIP.

Sure. So sorry, but in the audience who doesn't have the background, HVIP is a really nice tool for fleets to offset the incremental vehicle acquisition cost, so they can prove out the total cost of ownership and feel comfortable with the technology going forward.

What came out of HVIP this summer was actually the 2020-2021 program. It was supposed to come out late last year, it got delayed into this year due to a couple of different reasons, COVID and they were remapping the complete software system that we used to secure vouchers.

So it's been really exciting summer for HVIP. Demand has outgrown supply of funds, which is a clear signal that technology is working in the field, fleets are feeling comfortable and not just buying three or five, they want to buy 10, 30, 50, 100.

So as a result of that, there was more demand for funds that was available in both the June and August rounds. The good news is that this year's HVIP program, which is the 2021-2022 program is supposed to come out this fall with more than $200 million accounted for it.

So that is still being finalized at the state level, but broadly speaking, Subash, what we're seeing is, there is many of the programs popping up across the country As you know, HVIP is only in California. There are state level programs around the country.

there's Federal programs coming up and looking at the future, the Biden administration infrastructure plan looks very promising and we expect that will provide significant funding to accelerate adoption across the country and not have this be just the California business. And lastly, as a result of deals like Forest River, we will be moving much more volume.

As we mentioned, the cost of prices coming down to a level where we won't need incentives in a few years. So a lot of progress happening in that regard.

Yes, Just as a follow-up, so, was HVIP a material driver for revenues or will it be a material driver for revenues in the second half of the year or 4Q?

Kash, you want to follow up on that as well?

Yes, absolutely. Yes.

We expect that to be the case. So some of it comes down to how long the program takes to review new HVIP voucher applications and assign them voucher amounts.

Sometimes that takes a couple of weeks. Sometimes I think a couple of months.

So based on how fast the system works and grants got approved that will determine whether we build those units in Q4 or Q1 and then obviously the other piece is being what those projects are green lighted, we've got to look at supply chain again to see how those two pieces are lined and whether that becomes the Q4 activity or Q1 activity.

Okay, got it. A couple of steps there, got it.

Okay, thanks guys.

Hi, good afternoon, everyone. I just had a quick question.

Looking at your slide, it seems like you have about 1,200 unit annual capacity for production, which is a bit ahead of schedule from the end -of-the-day projections. Then on the old projections, we'd expected positive gross margin in the fourth quarter on roughly 300 units or so I estimated.

What now, do you expect to be the unit break even on gross margin given the pull forward and production capacity?

I'll ask Teresa to answer that one.

Hi, Sherif, how are you? We provided guidance for Q3 at $46 million with the adjusted operating loss of $12 to $13 million.

As we think about gross margin as we ramp production, we expect to generate the operating leverage as we benefit for higher volumes, fixed cost leverage on labor, our improved battery supply terms and operational efficiency that we do believe will drive to a positive gross margin, but with what's happening with the supply chain, we're just not prepared at this time to say exactly which quarter that would be.

Understood. It was more of a comment on volumes rather than actual quarter but also just as a clarification for the orders and backlog.

What portion of order of that [1600] units, are binding orders versus non-binding?

Good question, Sherif. I don't think we know off the top of our head.

I do and I think it's worth and I know, you and I've had a chance to talk some about this in the past. So I think it's a very relevant question and good question.

I'll break our backlog into - and I think it's important to note the backlog is made up of purchase orders. So these are - one of the things about purchase orders, is you could define purchase orders in a variety of ways.

Some purchase orders are cancellable, some are not. Some purchase orders have a contingency like HVIP or first article confirmation.

So there's a variety of things that a purchase order - a commercial purchase order with a major fleet in terms that it may have and our purchase orders kind of have all of the above. So we do have some that are what might come under that the terminology of binding because they aren't cancellable, but most have some form of cancellation opportunity.

Obviously, those are two way streets. If prices were something were to happen and we didn't want to go forward with fulfilling the purchase order, it goes both ways but they typically fall under - most of those would fall under non-binding.

So we can - as we go back and look at what's in our backlog, we'll do some work for next quarter and see if we can give you more succinct answer to that question. We are - so I apologize, I don't have something more succinct.

But I think overall it's an important question, something we are certainly constantly managing and obviously, always trying to work to have more binding purchase orders and fewer places for cancelations. But like I said, that also has a two way street that often comes with that as well.

Understandable.

Sherif, just to follow up there. As we talk about our backlog, we talk about it as it is comprised of non-binding agreements and purchase orders from the customers.

And although they does not constitute a legal obligation, we believe that the amounts included in backlog are firm even though, as Tim mentioned, these non-binding orders may be canceled or delayed by customers without penalty.

Understand. I appreciate the color on that.

If I could just one more question, just on the work with the supply base. I understand you've been adding a lot of suppliers to help fill in some of the shortages and working on the e-chassis, when you're talking with customers who have tried the product and driven and so forth, are they looking for specific components or are they saying I want a transit with a Proterra battery and so forth or are they flexible in terms of what you're delivering and what the components are from a supplier standpoint.

I would say all of the above. We do have some customers who say hey, we've really been impressed with a specific component and will this product include that specific component or brand name that they've liked and that certainly happens on the chassis front, it certainly happens on the battery front.

Many of the other components less so. Most customers don't - aren't aware of what brand somebody may be using for their heating, air conditioning systems or their other aspects of the vehicle, the thermal management aspects of the vehicle or the charging systems, but when you think of major components, especially batteries and chassis, some customers are indeed wanting to choose their favorites.

But many customers don't. And so I would say that there are aspects where the customers are looking at the complete package and saying, does it meet the vocational needs and do they trust our engineering and they've test driven the vehicle, do they like the product in general.

So I would say it's a mixed bag of some people who are absolutely wanting to be driving some aspect of that and other people who don't - aren't at all concerned. And then, obviously part of part of our team's job, when we think about business development is, steering that too at some level, when there is an opportunity to steer it.

So some customers may ask hey, can I get it with this battery and it becomes our job to say hey, we have another battery that we think is a better potential fit for your particular need use case, et cetera. But then I'll kind of give a third category in that is some categories like Buy America do become specific.

Some customers have a very specific requirement on something like Buy America where obviously that will dictate, for example, what battery might have to go in a specific vehicle. So there are certainly some cases like that that are dictated at a higher level or dictated by grant solution or something like that.

So all of the above. I realize that may not give you the answer you needed, but hopefully gives you color

Thanks. Appreciate that.

Thank you very much. And I'd like to close by thanking all of our employees for their contributions to Lightening's success, our shareholders for their support and our customers for their commitments.

We look forward to future discussions updating you on our progress.