Phoenix Motor Inc. (PEVM) Earnings Call Transcript & Summary

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Phoenix Motorcars Incorporated Proterra Transit Acquisition Update Conference Call. [Operator Instructions] I will now turn the conference over to Mark Hastings, Chief Investment Officer. Mr. Hastings, you may begin your conference.

Great. Thank you, Krista, and welcome, everyone, to our call today updating you on our recent acquisition of the Proterra Transit business. I'll be joined on the call today by Denton Peng, our Chief Executive Officer; by Jose Paul, our Chief Revenue Officer; by Mike Finnern, the General Manager of our newly acquired Transit business; and Lauren Cochran Scoville, Vice President of Sales for the Transit business. They will each say a few words after my opening remarks, and then we'll open the call to your questions. But for those of you who are new to our story, Phoenix Motorcars is headquartered in Anaheim, California. Our goal is to be a leader in sustainable and zero-emission commercial transportation with a range of products available to our customers, including transit and shuttle buses, school buses, delivery vans, and work trucks. We market our medium-duty vehicles through our brand Phoenix Motorcars. We're also currently developing a light-duty commercial vehicle line, which will offer pickup trucks and delivery vans, which will be marketed under our EdisonFuture brand. We are not a pre-revenue company like many others in our sector. We were founded in 2003. We delivered our first electric shuttle bus to NASA's Jet Propulsion Laboratory in Pasadena, California, nearly a decade ago, and our vehicles have logged more than 4 million zero-emission miles on the road. As a result, we have a stable and loyal customer base with approximately 150 vehicles out in the field. But the most important development in the company's history occurred 10 days ago when we acquired the transit bus business from Proterra. This transformational purchase was over 5 months in the making as we emerge from a very lengthy and detailed process as the winning bidder for the business. The Proterra Transit acquisition is an important milestone in our company's history and one that ensures that we will remain highly competitive in the zero-emission commercial vehicle industry. Through this acquisition, we have gained ownership of world-class technology and the intellectual property for Proterra's Transit business, a large order backlog, significant assets and inventories and most importantly, a team that has successfully scaled operations to become the largest electric transit bus manufacturer in North America. Proterra, the former Proterra's Transit business accounts for over 40% of all electric transit buses delivered in North America with over 40 million real-world service miles. The 35-foot and 40-foot ZX5 Transit buses were built on an innovative ground-up platform using a lightweight composite body offering the longest driving range on a single charge in the transit bus industry. The combination of Phoenix with Proterra's Transit bus technology will provide significant market synergies in terms of scale, product offerings, customer relationships and market expansion. We still have much work to integrate our operations, but we have made significant progress over the past 10 days, integrating systems, onboarding our new team members, reaching out to our customers and our suppliers. Now regarding our employees, they are the most important asset in this entire package. We extended offers of employment to all 305 employees on the Proterra Transit roster and 298, 98% accepted and are now part of the Phoenix family. We are continuing to operate the Transit business out of our Greenville, South Carolina facility, and we'll work towards ramping up production of the ZX5 transit bus. Our Anaheim facility will continue to be the hub for our Gen 4 product line. I just want to highlight a couple of things that occurred over the past several months. When Proterra declared bankruptcy in August of 2023, we were surprised and immediately interested in evaluating the opportunity this filing presented and excited about the prospect of adding full-size heavy-duty buses to our existing line of medium-duty vehicles. We were fortunate that several of our competitors who would normally be natural bidders for this type of business were suffering their own financial difficulties. Once we dug deeply into the business, we were impressed not only by the quality of the workforce, but also by the depth of their relationships with customers, by the relationships with suppliers and by the depth of the order book and backlog. We became convinced that by focusing acutely on the design of building high-quality, zero-emission transit buses, we will be able to turn this business around into a sustainable, profitable business that is a responsible partner to its customers, a buyer of choice for its vendors and a great place to work and build a career. If we do all these things correctly, which I'm confident we will, then I feel certain that shareholders who will likewise be rewarded. So what did we get in the Proterra transit bus acquisition? We got nearly 300 of the best employees in the business. We got a Buy-America compliant business that has a 40% market share in the fast-growing transit bus segment. We got a business that delivered approximately 200 buses with revenue of about $200 million per year in each of the years 2020, 2021, and 2022 before running into hiccups last year because of the bankruptcy. We also got an order backlog of about 400 buses with a revenue opportunity of about $400 million. And we've got an existing fleet in the field of over 1,000 buses and strong relationships with the largest and most well-respected transit agencies, municipalities, educational institutions and others. Based on these above factors, we were able to set our initial guidance at a minimum of 100 bus deliveries and $100 million in revenue for 2024. Together with members of Proterra's transit bus team, we will benefit from the increased opportunities this acquisition enables and the success of our integration will be driven by how effectively our employees work together to deliver value to our customers and results to our bottom line. We are proud of the company that we have created, and we want to thank our employees for their hard work and for staying focused on the goal to be the leading zero-emission technology provider. We're also delighted to welcome the amazing team at Proterra Transit in Greenville to our family. The entire management team at Phoenix is excited about the opportunities that lie before ourselves. We look forward to providing more detailed information regarding our progress in the coming weeks and quarters and not only for the Proterra Transit Bus acquisition, but also for our Gen 4 development, our retrofit solutions business in the Legacy Phoenix business and many other exciting opportunities that we're pursuing. At our core, Phoenix remains an engineering-focused company with patented technologies that address the market's need for the next generation of zero-emission vehicles. We have constructed our company to be flexible and asset-light. So we have an exciting road ahead with the addition of the Transit Bus business, the launches of Gen 4 and Gen 5 and EdisonFuture. We have built a scalable business that endeavors to maximize returns on our shareholders' capital while also deploying industry-leading technologies. We put together a management team that's seasoned and established in the EV sector, putting us in an excellent position to execute in the high-growth zero-emission commercial vehicle sector. I will now turn the call over to Jose Paul, our Chief Revenue Officer, and then we'll get back to Q&A at the end of the session. Jose?

Thank you, Mark. This is Jose Paul, Chief Revenue Officer. As Mark said, we are very excited to have successfully completed the acquisition of the Transit business assets of Proterra. As part of the acquisition, we now have access to one of the most experienced pool of talent in developing commercial electric vehicles in North America, a state-of-the-art manufacturing facility and the strength of the customer base the Proterra transit business has developed over the years. And in just a little over a week of completing the transaction, we've made significant progress with a focus on restarting operations, onboarding the team, and establishing a path forward to production ramp-up in collaboration with our supply chain and customers. And this acquisition doesn't just enable us to be a significant player in the transit bus market, but it also helps us benefit from significant synergies with our legacy business of medium-duty electric vehicles and future products under the EdisonFuture brand. This acquisition will also enable us to fast track the development of ground-up technologies for both the medium-duty and the light-duty segment. And we are confident that with the addition of the Proterra Transit bus business, Phoenix is uniquely positioned to be a leader in the commercial zero-emission vehicle space, not just in North America, but also in pursuit to other attractive global markets. And with that, I invite Mike Finnern to provide further insights on the business and the rich heritage and experience Proterra Transit business has.

Thank you, Jose, and thanks, Mark. Thank you, participants. My name is Mike Finnern, and I'm the General Manager of the newly acquired Transit business. A little bit about my background. I have been an employee with Proterra for about 14 years, and that started out way back in 2010 when I was the project manager for the very first 3 buses that we deployed when we really established this market segment, zero-emission heavy-duty transit buses. And since then, I've had a number of different roles within the organization; engineering, customer service, customer success. And then finally, as the General Manager responsible for operations here in Greenville. And that's the role that I will now carry forward with Phoenix Motorcars. And I'll let my peer, Lauren, talk about our relationships with our customers and the industry, which are second to none. And I'll focus on the one thing that I think I'm most proud about, and that's the employees that we have here. I know that I speak for all 300 of them when I say we're incredibly excited about the acquisition. We're excited about our ability to get back to what we originally started doing when we really created this industry over 14 years ago. It's the relationships that we have amongst ourselves. It's the passion for what it is that we do here for our colleagues and for the responsibility that we feel we have in the products that we produce, whether it's to improve the climate or whether it's just to serve those who are riding our buses at our end customers. We really feel a deep sense of obligation to continue doing what we've been doing. And so we're really excited to be able to do that. I think we've been remarkable. The commitment to the company has really been remarkable throughout what you can imagine is a fairly uncomfortable time as we've moved through bankruptcy. And I'm really proud to say that we've got essentially the same workforce that we went into it with. And I think that really says something about the people that we have here, the world-class talent that we have. And everybody has really just kind of renewed their enthusiasm for this business over the last several weeks and most importantly, over the last approximately 10 days, after the close, and we are ready to hit the ground running. So I'm excited about that, and thank you for the time. I will pass it over to Lauren Cochran Scoville, our Vice President of Sales.

Good afternoon, everyone. Thank you, Mike. Appreciate the introduction. As Mike said, my name is Lauren Cochran Scoville, and I'm the Vice President of Sales for our Transit business. I'm in my seventh year working for Proterra, now Phoenix, where I've led our Transit and Energy sales really to record sales and market share leadership in our category, which is the 35 and 40-foot battery electric bus space. With our regional sales team, we have helped more than 100 transit agencies, pilot and scale their battery electric bus programs across North America. And as everyone has talked about on the phone here today, that's really unmatched experience and expertise. And so we look forward to continuing to build on that effort with the same team and the same customers who have helped us achieve all of these great milestones. Like Mike, I have also been part of the Proterra story for a long time, actually since the beginning. So before joining Proterra on the payroll, I actually worked for Proterra's first customer, Foothill Transit, also on the project that Mike spoke about and that was the deployment of our first 3 battery electric buses and fast charger almost 15 years ago. So I've been part of the story for a long time, and I'm excited that we get to continue this story now as Phoenix. And finally, I'd just like to express appreciation for our customers' continued commitment to us and their partnership with us and their patience as we've gone through the legal process of bankruptcy. We're excited to emerge from this. We're excited to merge our shared vision for zero-emission transportation now with a full suite of product offerings. And so we look forward to supporting our customers in this effort. Thank you.

Great. And Denton, would you like to say a few words? Or do you want us to go to question and answers?

Yes. Thank you, Mark and Jose and also thank you, Mike and Lauren. So we've been -- we, Phoenix Motorcars and the Proterra Transit is building a lot of things together, and we are building one team and one goal. I think Mark, we can continue with question and answers. Thank you.

Great. Thank you. Krista, please -- there you go. Good.

[Operator Instructions] Your first question comes from the line of Poe Fratt from Alliance Global Partners.

I have several questions. I don't want to go too long. But could you just maybe, Mike, from the perspective of Legacy Proterra, can you just walk us through a couple of reasons why Proterra Transit ended up in bankruptcy and what you think should change going forward?

Yes. That's the same question that a lot of people have been asking, including our own employees, and they say, "Hey, what are we going to do different to make this a success?" And that's actually been, I'd say, part of the fun of this process, believe it or not, because we've had that list of things that we've needed to do for a while, and we have not been able to do it. And what I mean by that is we maybe haven't had the amount of focus on the Transit business. I think there's been some distractions, quite frankly, as Proterra expanded their product portfolio with powered and energy and valence. I think that resulted in some lack of focus on the Transit business. And a lot of why folks are excited now is because we're bringing that focus right back to our core business, focused on one thing, and we're eliminating some of the distractions. On top of that, there's an element of financial rigor that Phoenix will be bringing to this operation. And there is a lot of low-hanging fruit, as they say, to optimize our operation here.

And then maybe, Mark, you talked about just the targets for 2024, 100 deliveries and million bucks a piece, so $100 million of revenue. Can you just talk about how the cadence of deliveries will look? And is it sort of a flat line or potentially what's your fourth quarter run rate and exit rate as you look into 2025?

Yes. Poe, it's a great question. And thanks for your support and being here on the call and coming out to Anaheim and meeting us a couple of times. So you've been a real fan of the company, and we appreciate it. So we -- as you know, we haven't given any guidance kind of into 2025, but I'll just state a couple of things. The company in the past, as I mentioned, has delivered 200 buses on -- with regularity, right, in the 3 years prior to the bankruptcy year. So that's a pace of about 4 vehicle starts per week, right? And -- or 4 vehicles delivered per week. During the bankruptcy process, kind of at the worst part that cadence had dropped to about 1 vehicle per week. So we will be -- we've set a target for 2024 that we feel like it's very achievable. We do have quite a few buses that are -- and that was one of the kind of hidden assets that are largely complete as work in process right now. So we know we have a clear line of sight on a large number of deliveries. We would expect though that we can ramp by the end of the year, let's call it, to a cadence of 3 or so per week as we exit the year, heading into 2025.

And then when you look at the gross margin profile, just Proterra Transit, maybe if you don't want to talk about that, maybe you could just talk about the overall, including when you fold in the Legacy Phoenix. Can you just sort of talk about gross margins?

Yes. In kind of broad terms, certainly, Poe. So historically, Proterra's Transit business has been a single-digit kind of gross margin business, right? And I think it was just a combination of perhaps some inability to push costs through higher. Maybe it was the -- as Mike alluded to, kind of the lack of focus on the transit business specifically. But there are examples in the transit industry of companies that generate -- in the EV Transit industry, let me be more specific, of companies that generate margins, gross margins in the mid to high 20% range. So there is no reason why we can't benchmark those companies and achieve or at least strive for something in that range. It won't happen overnight, but that's where our expectation is and where we want to be headed.

And if you -- just one last one and then I'll turn it back. But can you just highlight, the deal seem to change a little bit over time. Can you just highlight, you probably maybe put this in press release or if you did, I missed it. Can you just highlight how much cash you put out, paid Proterra's creditors, for lack of a better way to say it, and then also what liabilities and warranties you assumed?

Yes. Certainly, certainly. Very fair question. So the -- if you -- as you know, it kind of changed and the bankruptcy process is a very, very cumbersome and complex process as we have learned to appreciate over the past 5 months. But our purchase was split into 2 asset purchase agreements. One was for the Proterra Transit business and some assumed warranty liabilities. The cash purchase price for that piece of the business was $3.5 million. And we used the fact that we are in the industry, we have experience in warranty claims with our existing customers, it's a Legacy Phoenix business. We used the assumption of warranties as currency in our bidding, and we did that with our eyes wide open. We wanted to be able to service our customers and maintain relationships and not tell them, sorry, the warranty is not our problem. So we assumed a significant amount of our customers' warranties for the contracts that we assumed. So that's kind of the asset purchase agreement for the Transit business. We also have a piece of the business. It's a financial portfolio of battery leases, nothing to do with operations, simply a financial asset purchase. And we anticipate closing that transaction within the next several days, by the end of the month. And that's for $6.5 million. And no -- there is no warranty or anything associated with that.

Can you just quantify the warranties, Mark? Or do you want to sort of leave it a little open-ended?

Yes. I think we'll leave it a little open-ended because it's, like any warranty, you have your actuarial reserves that you expect. And I know our auditors are working hard on that right now. So I'm going to punt on that question for now, Poe.

Your next question comes from the line of Tate Sullivan from Maxim Group.

Thanks for putting the call together. And Mark, since you have people from the Transit business on the call, can some of you talk about the competitive dynamics of selling electric transit buses in the U.S., particularly with BYD in the market? I believe BYD is still selling transit buses as opposed to cars in the U.S., but can you go over some of the competitive landscape, please?

Sure. Jose, do you want to take that?

Do you want me to take that?

Mike, Lauren, do you want to take that? Yes. Lauren, go ahead.

I think, Lauren, yes.

Sounds good. Thank you for the question. So the main competitors in the 35 and 40-foot battery-electric bus space in North America are New Flyer, Gillig, Proterra, now Phoenix and BYD. We do not see BYD winning many orders. In fact, we have not counted them towards our market share calculations in many years. And then Nova last year announced that they would be suspending their production in the United States, but they are still planning to participate as a competitor in our market. And was there another question about competition? Or was it just around who the competitors were in our space?

The competitors and mainly what are some of the main selling points when you talk to the transit agencies who are selling your vehicle moving forward?

Yes. Well, that's actually one of the beauties of this transaction is that we're able to maintain everything that made us competitive and quite frankly led to our dominant market share in the North American market. And so the main selling point is our best-in-class battery technology. So we intend to continue purchasing our batteries from the powered business. We have the most onboard energy storage of any 40-foot battery electric bus in our market. So we're still able to claim the longest range because of that. And then we have the same guiding principles of safety. So we are able to offer something called passive propagation resistance, which is unique to our battery technology. Through the -- retaining 98% of our staff, we were able to retain our technical leadership as well. And so I'll stop there, but those are the main selling points. And really, those are the competitive differentiators that really help us stand out from the other players in our space.

I'll just add to that. This is Jose. So just to add to that, I just want to touch upon the fact that the Transit industry or the Transit bus market is heavily regulated. It does require a Buy America compliant product, and there are also restrictions on the type of players who can actually participate. For example, there is like companies which are maybe tied to the government, and the PRC, are not allowed to participate in the sale of rolling stock for transit agencies. So this does allow for a fairly niche set of players who can actually participate in this market successfully. And with the acquisition of this business, the Phoenix Motorcars is now one of those 3 players, like Lauren mentioned, who can actively participate in bids and successfully fulfill those commitments for transit agencies.

One other quick note on competitive differentiators. We still have more real-world service miles than anyone else. And Mark alluded to that in his opening comments. And so that's something that we take with us. We've taken with us, for every mile, our electric buses have traveled, there is a lesson learned and all of those learnings have transition with us to Phoenix.

My other question was about changes in the -- your supply chain for the transit buses going through the bankruptcy process. And you mentioned that you still have access to the battery technology. Is that business -- has that business been purchased by another entity or can you talk about other changes in the supply chain, please?

Yes, sure. I'll fill that one in and anyone else, please chime in. Tate, yes, the power, it's called Proterra Powered. It is the bus -- I mean, the battery business has been -- the auction has been won by Volvo. That transaction is expected to close on February 1. So it has not closed yet. That facility, by the way, is just a handful of miles away. It's in Greer, South Carolina, which is the town that abuts Greenville where our bus manufacturing facility is. Other major -- look, our suppliers are eager to get back to work with us. As you might expect, during the bankruptcy process, many things got put on hold. Fortunately, Proterra Transit business had a fairly large inventory kind of heading into bankruptcy. So they were able to continue to sell buses during that time and manufacture buses. But a couple of the key suppliers, we have a sole-source bus body supplier called TPI Composites. And one of the unique characteristics of Proterra's Transit buses is, in fact, the body. It's lightweight and incredibly strong and flexible at the same time. So TPI is eager for us to get back and ramp production. And all of our other supplier partners are ready for us to get back to ordering supplies. And I'm sure our customers are eager for us to get back and order spare parts for them and continue to service their vehicles.

Your next question comes from the line of Donovan Schafer from Northland Capital Markets.

So for my first question, I want to ask, is there any potential risk that customers could back out of some of the 400 orders in the backlog? And I guess, we might need to break that down a bit. So kind of first would be, are there liquidated damages in those contracts or cancellation fees, so that under normal circumstances it has some kind of skin in the game that keeps them from canceling? And then the other part would be, if that's in place, is bankruptcy a condition that would -- that could potentially sort of nullify that or prevents you from being able to enforce any type of liquidated damages in those contracts?

Great. Thanks, Donovan. I'm glad you were able to make it for the call. Appreciate it. I'm going to respond to that question by making a statement and then I'll actually let Jose or Mike or Lauren kind of address the specifics of the contracts. But one thing I'll say, Donovan, and I've said this for as long as I've been in this business and at Phoenix, before the Proterra Transit acquisition. What keeps me awake at night is not can we sell our vehicles. It's can we produce our vehicles profitably, meaning the sales pipeline, we all talk about the sales pipeline because it's important and it's what people are kind of accustomed to thinking about. But we can sell as much as we can produce. So I'll just -- and that's just kind of a blanket statement. But we have so many tailwinds in the industry, so many regulatory, governmental, financial incentives, environmental incentives, so many tailwinds that is causing demand to be, if not inelastic, at least nearly inelastic. And it's really incumbent on us to get our production right and get our cost of goods sold right and our production cost is right and deliver a product that is high quality at the right price. So that's kind of -- that's my soapbox about demand, but I will let somebody else answer the specifics about the contracts and LDs.

I'll add a little bit to that, Mark. I can add to some -- answer that maybe more specifically, and thank you for the question. What I'll talk about here is what all of us I think have talked about, and that's our relationships. So we have had very, very little erosion of our contracted backlog throughout this entire process, very little. So it remains almost exactly what it was when we went into this process. And that is still true today, once we're out of bankruptcy, and there is no more kind of special handling of contracts like there is during bankruptcy. That's all gone now, and it's just up to us to continue our relationships and perform under these contracts, which our customers have maintained with us. Again, because of the things that Lauren mentioned, the things that we've all mentioned, our relationships and the technology. So we've had essentially no erosion of that backlog. And our expectation is that we will continue to grow. Our job now, as Mark said, is to start building buses. And that's -- we've been doing that. We never actually stopped doing that. It slowed down. Now our job is to crank that back up to where it needs to be and beyond even where we were a short time ago to be able to supply the incredible demand that we have. So LDs are not a concern. They're generally not a part of the contracts that we have. They're all negotiable and very, very minor in the grand scheme of things. So really not a concern there at all.

And then it's kind of -- kind of 2 related follow-ups. So the first would be still on the backlog with not seeing any changes to those 400 vehicles. With the contracts that are in place on that, do they have sort of a locked-in margin or some like flexibility? Or is there flexibility around that? I guess the question is sort of -- I mean, I guess, in theory or hypothetically, they could be almost like underwater contracts where you'd almost prefer that they could be canceled for you guys, but it doesn't sound like that's the case. It sounds like you're pretty positive on them. So do they fall into that kind of low or that single-digit profit margin or gross margin, kind of at the unit level? Or are they relatively more attractive or some are attractive, some aren't, and they kind of net out? Or is it even like something that's benchmarked to prices, and so it could move around? Just any color, that would be great.

Yes. Yes, that's a good question. And…

Let me jump in one quick one on, first, Mike, and then I definitely want you to finish. One thing I'll say, Donovan, is during this process, as a purchaser of an asset out of bankruptcy, we are able to what's called reject or not assume pretty much any contract out there. So we had the ability to review all of the contracts; current, past, and future contracts and decide which ones we wanted to assume. So that's kind of a blanket statement again about the bankruptcy process. So we'll start with that and then, Mike, please go ahead.

Sort of like -- I'll just restate it in terms of as a blanket statement, I mean, part of the whole point of bankruptcy is to provide companies with a mechanism to clear out detrimental or problematic contracts, if necessary to keep the business functional. And so if there's anything really problematic, you guys would have taken advantage of the bankruptcy -- that bankruptcy context to clear out those contracts. That's kind of what…

That is -- yes, that's true, just what you said.

Okay. Got it.

Yes. Exactly. Yes. And then we do still have the right to go -- any contracts that we've assumed, we absolutely still have the right to go negotiate terms if we wish. So there's the potential to change things at a later date if we would like to do that. If we think that for whatever reason they're less favorable, as you mentioned, we do have the rights to be able to adjust those.

Okay. And then the other kind of follow-up that is tied into what you talked about with the workforce and the [Technical difficulty] back up. Is the -- I guess, I'd be curious to know what the labor market is like in Greenville, South Carolina and whether that's even maybe a relevant question or not. Do you need a -- is the 300 employee head count, is that the headcount for the 1 vehicle a week or does 300 cover you getting all the way up to 4 vehicles a week and just [indiscernible] that would be helpful.

Yes. Good question. And we are fortunate to be here in Greenville, South Carolina, which is a fantastic business climate. So when we do need to hire new folks, throughout our time here at Proterra, we've grown from way back when I started a dozen people to over 1,100 with the other business units. Obviously, we're less than that now as we've split up the business. But the vast majority of that, nearly all of that, has all been hired, grown, trained right here in Greenville, South Carolina. So it's a fantastic business climate for that growth. That said, kind of circling back to an earlier question, what are we going to do different? That's one of the new things. We are actually operationalized right now for a significantly higher output than we had to drop down to during the bankruptcy. So we can start to ramp that back up significantly with really very little additional hiring needed. We do expect to go well beyond what we have capability of handling right now towards the end of this year into next year. And that's where the location here in Greenville is so nice because we will have really very little concern, no concern essentially to be able to do that easily.

And then I'll ask one last question and then I'll take the rest offline. So back to the same thing as through bankruptcy, you're able to get out of some contracts that are not -- and there's sort of a priority, there's an order of payout. And sometimes it's the suppliers who can get burned. So I'm curious, I mean, you already talked about TPI Composites and some other suppliers that I know are -- even if they did get burned, it would probably still be eager to come back as a supplier just because they kind of need the business and get things going. But are there any other suppliers where there could be challenges or maybe for certain product for certain component categories where it might be harder to procure something if any suppliers in the past were -- feel wrong somehow through the bankruptcy process or anything like that?

Yes. When we review the supply chain now, post bankruptcy, there are really not any suppliers -- there are some, as you mentioned, that may feel burned. But generally speaking, those are suppliers where we easily have an alternative or we may already be parallel sourced. So our supply chain risk right now, I think, is very low. And a matter of fact, a lot of our suppliers, as you say, even though bankruptcy isn't the finest thing for anybody, they had a lot of WIP, and they still have that WIP in there. And they will be more than happy to sell that to us. So in most cases, nearly all in fact, there's very little risk. And frankly, our bottleneck right now is getting our internal systems ramped up, so we can get all the POs out the door that we need and really nothing more than that.

Your next question comes from the line of Craig Irwin from ROTH Capital Partners.

So your last response actually did touch on a key question I want to see if maybe we could address. Can you maybe talk about the WIP that is on your balance sheet, work that's already been started at Proterra that is now in your possession, where the cost to complete these vehicles is maybe a little bit different than if we were to start with a blank sheet of paper?

Yes. Thanks, Craig. Thanks for joining, and thanks for the question. Sure. We spent a lot of time focused on this. So we can talk about it. Yes, our -- we have somewhere order of magnitude of 40 buses that are very close to being in a position to be delivered. So with minimal, let's call it minimal COGS still required.

That's fantastic news. That is really good news. My next question -- I'm not going to ask a tough question to answer there, but I guess we get to see in the financial results over the next few quarters. My next question is really you've got a fantastic fleet out there, 2,000 buses plus in the field. Now the quality on those buses is great, but there's always a level of demand for parts and services to maintain the fleet. What is your accountability or opportunity around servicing that? And is that typically a healthy margin business like it is for a lot of OEMs? Or was that priced strategically in the past as a part of the customer packages that were presented?

I'll answer that one, if that's okay, Mark.

Yes, go ahead. Yes, please.

Yes, yes. Yes. So we have -- Mark talked about the assumption of a significant portion of our warranty liabilities and a significant portion of contracts that was done because we know how important it is to prove to our customer base that we're here to take care of that. The transit industry is such that word of mouth is king, and we need to demonstrate our commitment to taking care of our previous legacy customers and, of course, those that are yet to be built. So we took that obligation on because we knew how important it is. Along with that obligation, transit -- public transit agencies using FTA funds, which is the majority of our customers, not all, but the majority. They're obligated to utilize their buses for 12 years. And that means that it's our obligation to be able to provide them with service and support to make sure they can do that, keep those vehicles on the road for the required period of time. So that represents an area of significant potential revenue and even more significant profit because as you say that traditionally, with vehicle manufacturers such as ourselves, is a source of significant revenue and profit. And it's frankly an area where past Proterra underinvested. So it represents an opportunity that is somewhat untapped. And our customers, frankly, are begging for us to get better at that. And that's why it's right up at the top of our priority list of fix.

And then last question, if I may. The warranty around batteries. So this had been a little bit of an issue for Proterra in the past. Given that the 2 sides of the business are being split off, do you anticipate that the warranty around batteries will be the accountability of Volvo to service going forward? Would you see any financial impact of addressing that, either positive or negative, with the existing fleet?

Mark, do you want me to cover that one, too?

Yes, sure. If you don't mind, Mike, go ahead. Thank you.

Yes. Okay. Yes, there's -- the expectations are that the agreement with Volvo Battery Systems will include warranty coverage for new battery procurement. Because of the way bankruptcy works, when you assume a contract, you assume everything in there. So contracts that we've assumed the warranty liability, if that includes the battery, that becomes the assumed liability in most cases, of Phoenix. So the good news is we've got a lot of history, a lot of knowledge. We know these batteries better than anybody else. We developed them ultimately. And so we've got a high degree of confidence in their capability, a matter of fact, data -- field data suggests that they're trending really very positively against their life expectations. So while there is technically some battery warranty liability, it remains very limited, and I think low risk for Phoenix.

Well, congratulations, guys, on a pretty exciting acquisition here. It's a good combination.

[Operator Instructions] Your next question comes from the line of Poe Fratt from Alliance Global Partners.

Yes. Just a couple of quick follow-ups. Mark, you said that 40 are in WIP or in progress. How quickly can you get those out the door?

Yes. I would hope that we would be talking about our first delivery under the Phoenix banner just in the next few weeks, Poe. And I would also expect that we can have all of them out in the first half of the year.

First 2 quarters, great. And then if, Mike, can you highlight how much -- what the backlog on number of buses and dollar value was going into bankruptcy? If you take a snapshot on August -- what was on August 10, 2022, or 2023, sorry?

Yes, I don't want to -- yes, understood. Yes. Thanks for the question. I guess, let me put it this way. The backlog was over 400 going in, I'd say, well over 400. And aside from what we have built since then, it's essentially the same, meaning it hasn't gone down. As you can imagine, we haven't taken orders while we were in bankruptcy, despite a number of folks asking, if we can, believe it or not, but it essentially remains about the same.

Okay. So you didn't really reject them any contracts?

No. So a bus is yet to be built. Very, very few were rejected.

And then if you look at your backlog right now, the 400, are there -- is there a significant customer or customers in there or is it pretty spread out? If you can just sort of maybe list the top 5 customers and the number of orders that they have on the books right now.

Yes, I don't know that I want to mention the specific customers right now just because we just need to be conscientious about where we are in this process, so early on with our transition as Phoenix. But it represents -- it represents a wide range of customers, transit agencies from very large to small and then everything in between as well as commercial customers, airports, and universities are all represented in our contracted backlog.

Okay. Great. Congratulations.

We have no further questions in our queue at this time. I will now turn the call over to Mark for closing remarks.

Great. Thanks, Krista. Thanks, everybody, for joining today. We really appreciate your spending an hour with us, and we look forward to updating you over the next several weeks. By the time we report our fourth quarter numbers, which will be at the end of March, we will have 2-1/2 month under our belt and operating this asset and getting to know the business, and I think we'll have a much better -- be in a much better position to talk about how we see things unfolding for the balance of the year and into 2025. Thank you so much.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.