Q4 2020 Romeo Power Inc Earnings Call
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Ladies and gentlemen, thank you for your patience, but you made me of Power's full of cool with that full year 'twenty 'twenty financial results cool is due to begin shortly that will be a bit of delay until we better get in the school.
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Ladies and gentlemen, and thank you for your patience, Steve maybe of powers fourth quarter and full year 'twenty 'twenty financial results cool will begin shortly.
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Yes.
Ladies and gentlemen, welcome to the Romeo power its fourth quarter and full year 2020 financial results call.
My name is Avi and I'll be coordinating the call today.
If you'd like to ask a question during the presentation you may do so by pressing the star followed by one the new type of thing he packed.
I would now like to hand over to I hate to the coast Hampden D V. P of pride of the shops the.
Please go ahead.
Okay.
Thank you Abby and good afternoon, everyone and thank you for joining us today for Romeo power the inaugural earnings call.
Apologies, we had a few technical difficulties in our earnings release should be coming out shortly it will be posted on our website Romeo power of dot com and on the Investor Relations homepage.
Before we begin the substance of today's call I want to remind everybody that the conference call will contain forward looking statements, including our expectations of future results sales cost of inputs market dynamics et cetera.
Our actual results may differ materially from those projected in these forward looking statements.
Additional information concerning factors that could cause these results to differ materially from those forward looking statements are contained in our press release that will go out shortly after this call as well as of the disclosures to our public filings with the SEC.
Today's call will also include a discussion of non-GAAP financial measures as that term is defined in regulation G. <unk>.
Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP.
Accordingly at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP.
With that I'm happy to turn the call over to line of Starwood Junior Romeo power as President and CEO.
Thank you Sam and good afternoon to all with.
With me today is law and the web Chief Financial Officer.
We hope you have had a chance to review our honors release.
Which will be released in a few minutes.
As most of you are undoubtedly aware currently the worldwide market for battery cells is experiencing a significant shortage of silicon the high quality performance sales that show up this has affected our ability to source adequate supplies of key battery cells critical to a specialized high density battery solutions as a result, we are making the.
Teal updates to our production and revenue outlook for 2021, However, I want to emphasize that we see the sell shortage as temporary and are confident it will not affect our intermediate and longer term opportunities.
As reported by our south of the fires the current widespread sell shortage within the EV sector is driven primarily by accelerated demand as more EV companies have secured capital in the last 12 months I was exacerbated by supply chain logistics disruptions caused by the pandemic while.
While we saw accelerating demand for cells the so.
Verity of quality self shortage was unexpected as has increased dramatically over the course of the last several weeks no. One is more frustrated than the Romeo power team about the delay in bringing our solutions to market caused by the global sales of supply constraints, particularly now that we have the capital secured the <unk>.
We executed our transition from an early stage innovator to of commercial enterprise with significant capital inflows.
I want to emphasize again that the sales shortage. We are facing in 2021 is not expected to have a material impact on our committed backlog. However, the impact of our ability to generate revenue in 2021 is significant.
Current or expected cell supply for the remainder of 2021 will not be confirmed before Q2, we're conservatively projected materially lower revenue than originally expected line will discuss this in more detail.
However, we are working rigorously to secure the long term cell supply contracts needed to deliver our solutions in a timely fashion.
To that end, we're pursuing free pathways to improve our access to cells. One we're negotiating long term agreements with our preferred partners to secure allocation through 2028, and we expect to have an update over the course of Q2, two as you know Romeo power has a rigorous qualification process rooted in safety and really.
The ability and we are pursuing qualification of alternative high quality batteries I'll provide us we are focused in substantial efforts to qualify new suppliers in 2021 trillion.
We're also evaluating strategic partnerships and seeking to make investments to drive innovation at the battery cell level.
All of a memorandum of understanding of what <unk> is a great example of this we will keep you posted on progress in this key aspect of the business.
It is very important to note that the demand for our leading edge battery technology solutions has not changed and is in fact growing.
Let me go over a few business highlights throughout Q1.
We launched the heritage of Environmental Fleet electrification program in collaboration with heritage of Environmental services.
Romeo power will play a critical role in the electrification of 500 battery electric vehicles and heritage its fleet between 2022 and 2025.
The only of power and heritage of selected participants for the fleet electrification program and we will be announcing those participants soon.
Finally.
I also as previously announced we have formed the strategic Alliance with Republic services to collaborate on the development of Romeo power battery technology for use in Republic electric refuse trucks, including a retrofit program to the completed in 2021.
We're excited by the early success of the Heritage Fleet electrification program and hope to replicate the success with Republic in the future of.
Our merger with <unk> acquisition Corp, which we completed in December 2020 added $336 million to our balance sheet, leaving the Romeo well position to manage true virtually any macro environment.
As we progressed from smaller volume production to a large scale supply of sophisticated battery technology for vast array of customer sizes and types in the commercial vehicle space. We are confident that we will optimize our leverage to address any supply chain challenges that might arise.
We have been women, thus far based on our unwavering commitment to delivering patented a leading edge battery solutions, which exceeds our customers' expectations and the metrics that matter to them safety liability energy density configure ability and fast charging.
The <unk> market, leading performance in these metrics translate into superior uptime profit per mile and return on investment for our customer base. In fact, we continue to make R&D investments to refine our product technology to enhance our market leading position in the commercial electric vehicle space and expect to accelerate our growth in the coming years.
Since the announcement of the merger of RMG in October and of course in December the broader team and I have been very pleased with the increased level of engagement with new potential commercial partners as well as those with whom we already are in conversation.
The work we did over the last four years to build a strong foundation, including trusted relationships with customers and suppliers of like to develop the industry's best technology commercialize and deliver committed orders.
The plant and grow of seeds is paying dividends and.
In 2021, the team a lot of committed to executing our current strategy to continue diversifying our contract orders and our backlog to expand our partnerships with established operators to electrify the fleets, which is showing promising early results at the continue working hard to reach signed agreements with an array of new partners. This includes new entrants.
The companies in adjacent sectors and those with established product catalogs.
I would now like to turn the call over to Laura and web our CFO to discuss our fourth quarter and full year 2020 results in greater detail.
Thank you Lionel and Hello, everyone.
I will briefly recap some key takeaways from our fourth quarter and full year 2020 results and provide an updated outlook to the degree of I'm able with limited visibility on cell supply and pricing. We're challenged to give specific guidance for 2021 as the picture clarifies, we will update our outlook.
In the fourth quarter and during the full year 2020, we generated revenue of $4 6 million and $8 $9 million, respectively, largely reflecting several prototype contracts.
We reported a net loss of $19 1 million and $41 $8 million respectively. This included notable one times one time items as follows $3 6 million in stock based compensation and $3 9 million and forgiveness of a stockholder note receivable.
We reported full year 2020, capex and free cash flow defined as cash flow from operations less capex of $1 3 million of negative $31 $2 million respectively.
Our common shares outstanding as of December 31, 2020 per $126 9 million. This excludes the impact of both the public and private warrants as part of the RMT transaction.
On February 16th we stated that we would redeem all outstanding public warrants to purchase shares of Romeo power stop the redemption window closes at five P. M. Eastern time on April 5th assuming all warrant holders exercise their warrants the impact of warrant redemption would be an increase in our shares outstanding of about seven 7 million shares and low.
The result in just over $88 million in cash true Romeo Power's balance sheet, the impact of which will be fully recognized on our balance sheet on the quarter ending June 32021.
The through today, we've received $1 8 million line.
One 8 million warrant excuse me have been exercise of approximately $21 $4 million in cash.
There is uncertainty regarding the accounting treatment for public and private warrants issued in connection with back Ipos and in determining whether the warrants should be accounted for as equity or liability as.
As is common with many other <unk> companies, we currently treat our warrants and equity in the presentation of our financials. However, we're working closely with our auditors to ensure this treatment will continue to be acceptable before filing our 10-K, rather than file using an approach that could be rejected upon final final determination by the SEC as a result, the numbers per se.
And here are currently preliminary and unaudited if the warrants were to be treated as a liability there would be no impact to adjusted EBITDA, We will file our 10-K within the period of time allowed for a filing extension in order to be certain of our accounting treatment will stand as filed.
If ultimately the required accounting treatment is deemed to be as liability the impacts of our financials will be noncash the changes would be as follows.
A long term liability for fair value of the public and private placement warrants as of December 31, 2020 for approximately $114 million of $138 million.
25% to $35 million of gain on the change in the fair value of the public and private placement warrants between December 2009, 2020, and December 31 2020.
Our updated loss per share will range from 22 to 10 cents true.
Turning now to our outlook for 2021.
As previously discussed we would expect it to start generating more material revenues in 2021. However, as you all know the global electric vehicle industry has gone through massive acceleration in the last 12 months the demand for raw materials and high quality self has outpaced supply faster than anticipated we.
We are not the only company facing this issue and we note that other major industry players of expressed similar concerns with high quality self supply and allocation. This issue is one way of working tirelessly to overcome.
To secure necessary sell allocation for FY 'twenty, two and beyond Romeo power has taken the following steps in Q1 'twenty one the lay the groundwork for a more access and more control of the downstream supply chain.
We have negotiated long term agreements with the we are negotiating long term agreements with existing cell suppliers. We have developed a new relationship with novel cell chemistry maker. He sell ex and we are aggressively working to qualify high performance cells from alternative suppliers for commercial vehicle applications.
We'll sell constraints will be of prominent theme for the EV industry in FY 'twenty. One we believe the slower year of production will allow Romeo power to build upon our foundation for operational and manufacturing excellence to execute our business plan in FY 'twenty two and beyond.
These foundational efforts include improvements and modifications to our capital expenditures and production capacity plan to enable three gigawatt hours of capacity for FY 'twenty three.
Later hiring of additional production head count to ensure we have a strong and cost effective manufacturing labor force and the implementation of more robust enterprise resource planning tools to enable Romeo power to become more data driven and more interconnected throughout all areas of the organization.
We could not be more excited about the long term prospects of our business, we're more confident than ever in our long term pathway to success and we know we can and FY 'twenty one in a stronger position with smart and prudent capital outlays, the right hires and confirmed access to self supply for future years.
I want to reiterate.
The unexpected limitation on cell availability has not in any way impacted customer interest in our battery technology, nor has it impacted our confidence to meet or exceed revenue expectations in the long term.
Our customers continue to see Romeo power as their trusted electrification adviser and are looking to Romeo to help them navigate these challenging times.
Recognizing the cell constraint for the short term, we now expect revenue to be between 18% and $40 million.
As discussed earlier, we are well positioned to emerge from FY 'twenty, one prepared for a robust FY 'twenty, two and beyond and are confident in our ability to capitalize on supply stabilization to accelerate our revenue plan and partially capture of the shortfall in expected FY 'twenty one revenue in future years.
Turning to costs, given our current expectations regarding supply we expect R&D specific operating expenses to be in the range of $28 million to $30 million and capital expenditures to be 40% to $45 million of which approximately $35 million is directly attributable to production expansion in tooling necessary to reach our.
<unk> downhole.
As mentioned earlier, we redeemed our outstanding warrants earlier this month, which if fully exercised would result in cash proceeds of up to $88 million, partially mitigating our cash flow throughout the year.
As of today, we have received warrant exercises for $1 9 million shares and received $21 $4 million in cash.
In summary, we are working diligently to navigate the unexpected cell supply shortages facing the EV industry and while the supply issues are delaying our revenue ramp we continue to be confident in our business and in our ability to deliver value for all stakeholders in 2022 in the south.
Okay, and then Lionel will offer some concluding remarks.
Yes.
Okay.
Ladies and gentlemen, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
If you change your mind, Please press star followed by <unk>.
And if you'd like to and.
Make sure your line of the muted locally before asking your question.
Our first question comes from Greg Lewis from <unk>, Craig Your line is now open.
Yeah, Hi, Thank you and good afternoon, everybody and thanks for the updated guidance could you provide a little more details of all around the change in that in the 2021 revenue guidance. He was that primarily related to.
Customer of our customer of one or two customers or.
It seems I imagine it wasn't just the one thing, but any kind of color around that I think would be super helpful.
Yeah.
Sure Greg Thank you for the question.
The change there is based on our visibility into cells that we have secured through the end of the year and so that number is slightly fluid based on ongoing negotiations to supply to secure additional sell throughout the year. So it's not related to a change with any one particular customer.
Okay, and then so and then so as we think about this realizing it's still early days.
In the formulation of your company.
At a certain point should we be thinking about.
How should we think about the company positioning itself that the potentially.
Source cells.
I mean the.
Should we expect you to kind of broaden out your.
Our supply chain.
This year or how should we be thinking about that as we look out to <unk>.
The higher growth years, what were which were largely being in 'twenty, two 'twenty three and 'twenty four.
Hi, Gregg So first of all thank you so much for joining and ICA of voice again, so like we laid out in the opening remarks.
Have a three pronged strategy, so first and foremost as lorie touched on this was related to self visibility into not only sales, but the quality sales as you know we have a rigorous process and we will not sacrifice safety reliability just too.
Drive volume, if you will sort of the three pronged strategy is first and foremost.
Negotiations for long term agreements to the lockdown.
The allocation from 'twenty, one through 2008, so long term agreements with our primary per for our partners.
The second pillar is exactly like I touched upon there are suppliers that are being put through our qualification process by the as I said in the beginning they are not ready for prime time as yet. So we are dedicating resources to getting them ready and making sure that they qualify to our process and the third pillar.
As of exactly what you touched on right.
We have been vocal with the fact that we will continue expanding and going deeper into the battery value chain, what as with novel, Idaho, the materials or the best cutover of the separators et cetera to ensure that we continue pushing innovation in that regard and carefully locked down long term, which we have high confidence in doing.
We are long term agreements qualifying tier two battery supply of if you will and then continuing to push innovation done at the battery cell level.
Okay, Great and then and then just as we think about.
So some of what the new administration is talking about in terms of of of buy America, Amit I mean, clearly that seems like it should be a key differentiator for Romeo.
At this stage is are you guys comply with block buy America as their diligence that needs that the company needs is there any processes.
Or are we stand today, what we're ready to start selling into any buy America orders that that might pop up here as 2021 plays out.
Yeah.
Ready to go with fully compliant as you know probably design validated and produce in America, and we are ready and compliant okay.
We are very well positioned to win any of the orders that will come up from the mandate from a performance standpoint.
Okay perfect. Thank you very much for the time everybody.
Thank you Greg.
Thank you. Our next question is from John Lopez from vertical group John Your line is now open. Please go ahead.
Yes.
Hi, Thanks, very much can you guys hear me right.
Yes.
Fantastic.
How are you Matt good to hear from you.
Good day, and I have a couple of cookies.
Okay I have a couple of questions if I could the first one is.
If I remember right.
And the acknowledging it was a little while back but the prior deck I think we had like a $310 million.
<unk> backlog and maybe $2 5 billion of that in the neighborhood of under negotiation.
Are those metrics you can update for us as of yearend.
Sure John So that the actually contracted backlog currently stands at $544 million, Okay, and we're in deep discussions and have visibility into a multibillion dollar backlog right and we're highly confident net throughout the rest of this year will be announced.
In addition of partnerships something to just pay attention to is as mentioned in the remarks is from the heritage Fleet electrification program. We have selected the partners and we will be communicating more about that soon.
Okay terrific that's helpful.
My second one Lauren I think relative to the initial thought for R&D This year.
Despite things being a little tighter on the supply side I think you are actually spending a bit more on R&D.
Then maybe it's been laid out prior I'm wondering if I'm remembering that right.
If that's right is the delta there largely attributable to like qualification costs for like new sales or for new cell vendors is that the way to think about those those metrics.
It is slightly more than what we had originally thought about we've continued to develop what our innovation strategy looks like over the next three to five years and despite the fact, our revenue ramp is going to be a little bit slower. We are absolutely committed to continuing to invest and broaden the edge that we have.
In R&D, so we will be spending.
For qualification of cells for additional validation et cetera, but then also on new technologies.
Related to the next generation of our products. So we're not slowing down on that at all.
Okay got you that's really helpful and then the last one Loren.
If I think about the sort of capacity and the production side. One other clarification I think you said three gigawatts of three gigawatt hours of excuse me of about 2023, I think that is kind of unchanged.
In other words I thought the plan was like a gigawatt hour per year do I have that right and then secondly, just on the cost side.
I mean, I think one of the potential advantages if we want to put it that way. It's just I think you guys can probably be a little more measured.
And how your tool those factories up.
Some of them more automation and things along those lines and so as we think about gross margin.
Was there a benefit there as we go into 'twenty, two and 'twenty three just maybe a little less manual of little more automated.
That's exactly right John So we are expecting to be.
Approximately the same place from a revenue standpoint by 2023 and definitely in the same place from a capacity standpoint, we just get to to.
The move ourselves to that place more efficiently. So we will see economies of scale with our capex providers as we design and purchased certain things together and then we will be able to be more efficient with our hiring plan make sure that we bring people on as we have more automation in place. So there will be a positive impact to our gross.
Margin of the way we've projected this with the slower ramp.
Alright, that's helpful I'll duck out thank you very much.
Thanks, John.
We now have a question from Steven Fox from Fox Advisors. Steven. Please go ahead.
Thanks, Good afternoon, everyone.
Couple of questions from me first of all in terms of looking at some of these long term supply agreements.
I would imagine that there would also the pricing pressure associated with it so.
I'm, having trouble understanding how the gross margin impacted sort of net neutral over a three year period can you sort of dig into some of the expectations for terms and agreements on the long term supply agreement and how maybe your customers can help you locked down favorable supply and then I had a follow up.
The ACO is first of all the good afternoon and thank you for joining <unk> from from the long term of BMS standpoint as of.
Communicated prior two pillars, one ensuring the allocation of quality supply of lot of tone.
So we wanted to ensure again that we have the highest quality and the second pillar would be the continuous innovation so low.
As of the two pillars from the tone standpoint, maybe some co investment from a from a line of Xbox shell and capacity standpoint, again, just locking down that from 'twenty, one through 2028, which were in active discussions with.
So that's how the structure of that we're looking at from from the preferred partner standpoint and of course from a from a pricing standpoint of ongoing to the direct contracts now but of course there'll be some some near term pressures on the pricing, but there will eventually be a catch up clause to get in line with expectations over the course of allowed.
Total agreement.
Thanks for that and then just as a follow up can you talk about.
Maybe put in perspective, you talk about high quality sales and how things have changed can you give us a better sense for maybe the relative challenges of sourcing the types of cells you.
You were looking for and how quickly you can sort of get back on track with.
Getting the supply chain.
Back to where you think it should be and then just one clarification Loren did you say that.
You expect the warrants to cover the the cash burn for the full calendar year 2021.
I'll cover the cash burn question first and then trying to line all of that the cells. So no. The 88 million. If all warrants were exercised would not cover the full cash burn for the year, but that would of.
Offset the cash burn there and we are not saying that all warrants will be but that $88 million would be for the full number if they were exercised.
We're not at this point, giving of what our expectation is on the cash burn until we have some of the long term agreements locked down because there are some fluctuation in what those expectations will be until that's done.
Yeah and as Steven from.
I am so sorry, I accidently muted Lionel please.
Sorry, I apologize Stephen so from.
From the sales standpoint from our qualification process, we not only look at the open end metrics such as open circuit voltage and starting at the very cells are performing in line with the data sheet. If you will but we care about where the ability from a manufacturer of royalty standpoint in our process fast charge capability and quite frankly, the ability for the sale.
To perform over the medium long term because as you know in the CV space our customers require long term performance. So as we said in the opening remarks, we expect an update on Q2. So that that is still in line with expectations from the long term agreements standpoint, so from day, and we'll be able to the signal moving tons of the <unk>.
<unk> of details in our LTA and then the second question again, we've been developing the tier two suppliers for a while as you know so we anticipate driving we've down selected to an additional two preferred if you will and we will continue to drive in development of them throughout 2021.
Great. Thank you for the color.
We have a question now from Adam Jonas from Morgan Stanley. Please go ahead.
Hey line of everybody.
Sure.
So hey, Adam, but I want to go to the high the cell supply sequence can you take us through I believe in your prepared remarks, you said it was in the last few weeks, maybe did I hear three or four weeks.
Just kind of want to hear how that went down.
When you first realized there was a serious problem.
With the supply that.
Cut the revenue.
Because of it because part of the story of thought was you know you're you have for suppliers.
<unk> four main cell suppliers of do you Whittle down to your to your selection process from I guess you get the one hundreds of intended for.
And part of the investment thesis on US was that because you had spread out these relationships across the four of the best cell suppliers in the world.
We could of really manage the risk or at least had visibility on something like the so I'm curious when did it first come up and was it all for cell suppliers of the same time or is there kind of a.
The disproportionate dependency on one or two of them. The first question.
Hey, Adam Thanks, again for joining us so just a quick clarification for part numbers.
Net for defense cell suppliers, so our our preferred cell suppliers that we that we put in the forecast are LG and Samsung.
So I just wanted to clarify from.
Industrial supply of <unk> pardon me pardon me, yes, okay.
So I think <unk> answered that did they both the Samsung and LG, both really well capitalized probably you know the really the the top of the.
The pile in terms of the quality I think really we would agree it was at the simultaneous thing was it and then how did that how did it go down.
What are the thought you had some better visibility than a few weeks on that.
Yeah, So Adam just from a kind of dual and of dual fashion.
Quite frankly, as you know where these two suppliers. The biggest thing is high quality. Okay. So from a high quality standpoint, that's the number one metric and historically you could have lead times of 12% to 15 weeks, Okay and lead times are continuously being being pushed out so as we are.
We're in discussions with our partners the allocation decisions as we save will be given in April as you know the expanding the capacity in the struggling some some maybe mean focusing with the <unk>.
Pandemic issues et cetera, so I want to be clear as typically is 12 to 15 weeks lead time.
From for our high quality battery sales to come in the door of lead times have been pushed out in Q2 allocation specifically for 2021 will be given in April but again, Adam before the second question. We are working from a long term agreement standpoint to ensure that we locked down allocation from from now till 2028.
Okay because.
Because again of one of them one of the natural questions is if it happens. So so early right on your maintenance of your very first conference calls of.
Publicly traded company.
Lot of folks are going to wonder how do we how do we ensure that this doesn't happen again.
But I think that to your point you are trying to that's your challenge and the opportunity with these.
These pathways.
The question on price from my follow up on cash Adam sorry, Yes.
Sorry to interrupt the let me just be clear.
With the comment that you're saying.
That's why as we clear of hurricane and share it happens against the one when I said and I'll reiterate highly confident.
The visibility and that we'll be announcing additional deals throughout 2021 like I said when we when I talk about the how do you ensure we happen again, where we are well capitalized and we have the balance sheets of support long term agreements with our preferred partners, which can include line investments at.
Well its core investments for facilities as you know I know you're an expert in this you know how these deals are structured to know that we went public we were able to be capitalized to do these types of deals. So we're highly confident in our outlook from a pipeline standpoint.
Also we are well capitalized to execute upon their plans for the <unk>.
That we are in discussions for LTE as from 2028 shows you the vigor and confidence we have in our outlook as well as the capital allocation necessary to lock. These dollars long time, so the no longer be spot buying which is what we're talking about it will be a structured long term agreement from <unk>.
21 through 2028.
That's very helpful and that kind of leads to my next question, which is you've got $220 million to $292 million of cash at the end of the year.
And.
The <unk> outlined the capex the opex the R&D.
Potential for warrants to fill the gap within a range right.
And.
And then you say that theres cash burn on top of that but youre not going to that you want to wait until theres clarity.
Two before you give more visibility on our full year cash flow because that is kind of from of shorter term perspective.
That is probably the number one thing is the burn rate versus what you have on the tank the sheer right and so I guess my question is what what is the nature of that of the.
Cash usage of the calls on cash beyond the Opex and Capex is it is it I'm not asking for the amount because we don't know that you don't know that but as it related to capital that you might need the set aside or have to spend upfront or commit in order to secure those long term contracts is there some other what are.
Of the or some other draw on cash in.
I'd love to know the order of magnitude I'm not expecting we're going to get that on this call Tonight, but just if you can't give us the order of magnitude of what that what other calls on cash that could be this year. If you could tell us what the what the character of nature of them are that would be very helpful and thats all I have thanks.
Sure.
I won't give you the order of magnitude today, but you're thinking in exactly the right thing and that is we're preparing that we could make investments with some of these of some of the.
Expected long term cell suppliers. We also are willing to make investments potentially with new cell suppliers. So that there is not such a small group that we that we would all be supplied with the slide <unk> in the future. So our intent here is to make sure that we are we can be.
The opportunistic as we need to be to establish a robust and very diverse cell supply.
And even explore going into other parts of the value chain, if that would be beneficial and additive to our business over the long run. So those are the things that we're looking at outside of Capex and Opex and Adam the only declared and ask the last question from us from a technology standpoint.
We're not slowing down we are a technology company first and foremost.
In the past you all have discussed the fact that we're pulling the innovation pillars at all levels. So we are focused on ensuring the access and innovation in the battery cell standpoint, where we're extremely focused on continuing to highlight and expand our software capabilities to add the ecosystem services as the.
Well as continuing to optimize in our hardware standpoint, so I want to be clear before of course are one highly confident in the pipeline that we see from a technological standpoint, our innovation roadmap is extremely robust and that's what we'll be spending a majority of the funds to continue extending the gap between us and autos.
I appreciate it a line of.
Thanks for that explanation and I wish you the best of luck.
Thank you Adam.
Our next question comes from Gabe Daoud from Cowen.
Please go ahead.
Hey, good afternoon line of Lauren and everyone else. The thanks for all of the color so far.
I guess it was.
The scope and so maybe just start line on the $2 2 billion in.
Contracts the.
We are in advanced negotiations to do you mentioned could you maybe.
Just remind us the customer makeup of the of the $2 2 billion relative to the customer makeup of the of the.
The contracted backlog of 500 reported $4 million.
Sure. Good afternoon, so from so the contracted revenue.
Is $544 million as we touched on before from in terms of makeup.
We have.
In terms of makeup in terms of our customer mix, we have some up and come in as the so including line electric as well as the Nikola as well as some others now in terms of the pipeline. What we are focused on is diversification from queso in deep discussions with.
If you will incumbent.
Aims to onboard and diversify.
The backlog so that's the makeup as we see it.
The launch I want to be clay in the deals that we're doing are in discussions with our long term agreements. They are robust deals and they are based in our technological advancements as well as continuous winning from a cost of commercial vehicle standpoint, okay. So that's what we're focused on.
I mean to be transparent of course theres opportunities too.
The continuously grow the contracts that we currently have on the books, but we are focused on diversifying.
The incumbent Oems.
Thanks, Paul.
Helpful. And then I guess, just as a follow up not the.
The horse so to speak but on the the.
The contracts with providers in the negotiations I mean the.
The fully anticipate.
<unk>, providing us with an update on this fairly soon.
The street and the market just some more comfort and visibility.
As you mentioned I guess when should we expect another update on this from from you guys. This year.
Yeah, you of Youll get an update in Q2 and again, it's rooted I want you to leave the call update in Q2 rooted in end of long term agreements locking down allocation between 21% and 2028 and it may include some some co investment and therefore, it's okay. So I wanted to be clear it's not spot.
Buying where we're confident in the demand outlook that we're seeing which has given us confidence to sign up for long term agreements with our preferred battery cell providers. So Q2 will give you an update.
Got it got it thanks Lino.
And then actually just one more quick one Lauren if I, if I could just a clarification so.
I mean more or less you do expect to be in the same place on both the.
The top line revenue standpoint of and capacity standpoint, and maybe even the margin simply by 23 of the spike.
Some of the issues of 22, if I think about what you've laid out in the and some.
Some of the prior materials is the should we expect the top line for 'twenty two to be a bit impacted by this as well.
We are still assessing the impacts of 2022, so I wont give you what our forecast is for that number exactly at this time, but we believe that we will be able to offset the short term hit that we're taking now and be able to recapture some of that in outer years and certainly starting in 2000.
The 23, if not before and we would intend and we believe that it will be before that but I won't be able to give you numbers on that until later.
Gotcha Gotcha, Okay. Thanks, Eric.
Thank you.
Our next question comes from Sean Milligan from Williams trading Shawn. Please go ahead.
Hi, guys.
The the shortage in the sales this year and the inability to deliver power packs does that impact in.
Any of the contracts or trigger anything in the contracts in the backlog.
Okay.
Hi, Sean Thanks for joining thanks for the question, we don't expect any impacts to our backlog, we're working very closely with our customers and working with them on adjusting the timeframes and they are aware that this is an issue that affects more than just romeo. So we're not expecting that there is any hit to the overall backlog.
Just a matter of timing.
Okay. Thanks, and then can you address.
I don't know if you can talk to the spirit the Borgwarner JV.
Obviously, the investigator purchased another company in Europe. So just trying to think about how what's the right way to think about the JV moving forward.
There is no change to the JV that we have with Borgwarner at this time, we continue to pursue business together in the European and Asian markets. At this time that that's our core focus today and there is there are no changes.
Okay, great. Thanks.
We have a question.
We have a question now from Noel Parks No. Please go ahead.
Good afternoon.
Okay.
Good afternoon.
Had a couple of questions you did mentioned that.
Despite the.
The near term issue with the with tax of <unk> seen no change to the customer interest and you also mentioned the.
The goal of.
Of diversity diversification of.
Of the customer base.
Just curious can you just talk about what your sales team is seeing there.
Any changes to customer decision point.
As far as.
What what customers are looking at.
And you're offering as opposed to competitors.
Sure sure.
From a commercial vehicle standpoint.
Uptime practical mile safety right. So what the decision points, what we're seeing is actually an acceleration of this questions and interest and foot traffic. If you will into the facility and what they're looking for is long term technological advances and quite frankly.
They want the trucks the pro forma of the switch from Ice's <unk> flawlessly.
The longer oriented, especially as you look at the incumbent Oems the Cabo technology, and that's what matters. The most and so we're seeing deep discussions and that's why you keep hearing me say I'm highly confident in the additional long term agreements this year because they come in and they bring the technical team. They go through.
All of our facilities all of our designs and we always beat competitors of safety reliability energy density configure ability and fast charging that is the case. So what we're going to be focused on again is diversifying the order book and the leading indicators you should be looking.
At all quite frankly, the tougher portions of the industry.
The last six to class eight survey of duty vehicles over the road et cetera.
That's what we're seeing we're seeing that the customers are interested in electrifying their fleets, but only with technology that will enable the business model to make sense and the coming back to Romeo every time.
Great. Thanks.
Interest.
Sort of larger of Big picture question.
Just interested in what your thoughts are on the the lithium market.
Where we stand now.
Okay.
Despite the quarter by quarter, we get a little bit closer to some of the.
Larger new supplies.
Hopefully coming online globally. So.
Thoughts you have there would be great.
So I think look I think as you see this demand that's really transition and that's the only from the regular regulatory pressures, but you have all of the fleet managers committed to electrification on the entire value chain. So.
It's getting more and more from a demand standpoint.
And what we're focused on again is figuring out how to lock down our partners on our value chain over the long term. So the in the front end of the business, where we are going full speed ahead of 21 through 2008, because again, we are very confident in our demand picture. So that's all.
The front end side of the business, but also on the backend of the business. One thing we haven't really touched on is our battery recycling collaboration whereas at the environmental So we're really forecast on quite frankly, eliminating the minds. Okay. So we are focused on ensuring that whatever raw materials come out of 100.
Percentage of those will be recycled in the future as you know less than 10% of those materials are.
Our recycled today, so what we care about is insurance something recycling the material and you're introducing it back into the front of the value chain and the end customer feels no different from queso front end is long term agreements back end is recycling, but we see the demand picture will continue to grow with this.
<unk> material going forward and that's how we're tackling it at both ends of the business.
Great. Thanks.
Just a housekeeping question.
I'm sure this will be in the 10-K, but if you have the number handy where does the employee count standard I think the last theory had was that the.
Timber 32.
We're actually as of.
The today about 190.
190.
Great. Thanks, so much.
Thank you.
We have the question now from Joseph Osha from JMP create Joseph Please go ahead.
Hello, everyone. Thank you for the comments.
Hello Hello.
Alright, alright.
So a couple of questions first line or you had mentioned earlier that <unk> been out volume in the spot market net that makes sense.
You are in an environment like this and everybody wants the same thing, which is low cobalt sales from Korean manufacturers.
Everyone's sort of struggling to get the same long term agreements in place. The EUR. So from my first question is the.
You actually intend to go out of drawing contract all of your volume or are you still going to be an opportunistic spot buyer in the market as the opportunities present themselves.
So I'm going to be part of all of it. Thank you for the question and thanks for joining.
We will continue to be opportunistic okay at what the demand picture that's in front of US honestly, we will consume and deliver as much value sales as we can get right. So we're going to lock down.
It's not all of the battery cells is the quality of those sales like I said right. So making sure that we have access to those quality sells long form is of critical importance and again in Q2 will update you on the pillars of that agreement and who it's wet.
Holistically.
We'll continue to look forward and add to our.
The foreseeable future from the hedge fund program that we start with that we stood up like we've done with PCB of components right. So we will lock down low <unk>, but also of continued to be opportunistic and to be honest. The opportunistic portion is really to bolster the tier two program. If you will.
And our tier two program again.
The battery cell suppliers that are not ready for prime time, and we will actively growth and just try storm them right. So the tier twos already in our facility, but they may be at tier two of tax free that's promising and we just want to grab it and start testing early so I don't want the close any window I'm going to go out and contract might demand that we're seeing that we're highly confident we will.
The announcement and then I'll continue to keep the spot by the Oregon as well.
Right because the reason.
Yes look it was true of DRAM, it's true of naphthalene, it's true in steel no tier one supplier is going to write you a sweetheart long term deal at this point, if they can make more money selling the desperate spot buyers interest.
This is what it is.
I guess my second question and sorry can I just try to Adobe.
Sorry.
But let me be clear also.
With the cell partnership site.
It's really yes spot line, but what's important is our reputable partner that can help grow their business. So quite frankly, the technologies that we have put in on road.
The quality of the order book that we will continue building is very attractive to our two hour.
Our partners, Okay. So I want to be clear, so as Wildwood day, lockdown well as as we have communicated our demand outlook and what we see and of high confidence opportunities.
They also have been having in our our goal is to be the premier of foundational technology provide us the commercial vehicle space as you know so it's a win win for us and a win win for our <unk> partners. As we continue pushing that strategy. We have we have deep visibility into a multibillion dollar pipeline.
Deep visibility into supply these agreements don't happen overnight, okay, especially with the quality of agreements that we're going after but nothing to the buying business line to enter and deals that we cant stand behind so both on the customer side on the battery cell side, the details of the partnerships matter more than anything else.
And we have high confidence that we will be put in quality deals flow.
Of our time growing the business.
Okay.
Well thank.
Thank you and then my second question is obviously you designed to.
Specific rfps and so forth but.
<unk> continues do you all talk internally about saying, Hey, maybe we should do an RFP product or.
Don't know offhand. If you guys are building on the 22 <unk> hundred 50 U K will take some making 600 fifty's and go back product. It from can you get $22 70. The is there any sort of flexibility in terms of what your product profile looks like but you can exploit.
Sure.
<unk>, we can do any of it we can do any of it. So that's why if you notice we keep seeing quality quality cells. We can do any of it but again the main thing I have been seeing.
From the commercial vehicle space is I want the Chuck if a customer has a chuck of it needs to go of $2 50 to 300 miles while he or she is ICD that truck has to go the same or better as he or she switches to <unk>. So we can't do anything, but what we pride ourselves on is ensuring that we match now.
The only the overall the overall solution by especially of the battery cell solution to ensure that our customer will be winning.
So I LSP or all of these auto is let's find out we are still agnostic. That's just the jump in upbeat and that's fine, but what is not fine if our promise of 300 plus miles currently now lets have the 150 that will now fly and I will not I will not allow romeo power to be and also around.
The company. So that's the decision matrix that we go true as we are deciding upon which battery cell to utilizing our solutions.
Okay. Thank you and then my.
Last question simple one obviously.
Of the companies that are hanging out there to everybody knows about her.
And the return needs right.
Buyable for you in the political environment, and so forth to have a Chinese cell supplier and can comment on that.
Well from a like I said, we're staying open again, what we're looking for is the highest quality ourselves, especially in the commercial vehicle space. This is extremely critical this is why we've communicated that our preferred partners.
Within our our presentation are LG and Samsung.
I keep telling the street of keep tell in the partners battery cells are not created equal they are not okay. So if there is a technological winner will stay open we'll lock that down and like I said, we will continue pushing on developing tier two players, but also we're making investments.
<unk> D play in the value chain to ensure that we're driving down day. Okay. So I wanted to I want this delta of the political landscape, but what I want to say is what drives our decisions of safety reliability and quality and as of right now our before our partners are LG and Samsung.
Thank you for your answers.
You are welcome and thank you for your questions.
We have a follow up from Sean Milligan from Williams trading Shawn. Please go ahead.
Hi.
Can you just the follow up can you talk about if you are to co invest in of cell manufacturing line.
Kind of the lead time for that production to come online.
Can't comment of can comment on the specifics.
Of that until we can give you the update in Q2, but again, let me tell you what let me tell you the elements of the elements is the locking down from 21 through 28, Okay and working with our partners to understand the timing the allocation as well as out of details that we will be updating you on in Q2.
Yes.
Okay. Thank you.
Youre welcome. Thank you for the follow up.
So I can confirm we don't have any further question farhan backend of the mansion management team for any closing remarks.
Thank you all for your time and attention today.
Me wrap up by saying that in spite of sort of end market challenges to secure cells that are facing the entire EV sector. This is an exciting time at Romeo power when emerging company ready to scale and seen encouraging market reaction to our solutions, thus far our committed backlog and associated future visibility to future backlog growth validate.
The technology Superior our business plan is solid we are well capitalized and will continue to invest in new technologies, and our leading EV innovation to stay ahead of the call.
Homegrown suite of battery modules continues to exceed customer demand for our expected range charge capability and safety as we continue the journey now as a public company. We are eager to continue expanding our competitive mode, adding new customers of our roster a reacceleration of our growth path one cell supply normalizes before I conclude.
I would like to thank all of our 193 team members for your hard work and commitment to ensuring that the Royal mail power success.
There is no one more proud of you all of that myself and the executive management team.
We have what it takes to face challenges, but all of us at Romeo power confidence in our future and the exciting prospects ahead. Thank you. We look forward the future discussions with you include the Bank of America Auto Summit Tomorrow.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
Yeah.
Yeah.
Yes.