Q3 2021 Romeo Power Inc Earnings Call

Customers value most.

Energy density increase range.

Some efficiency and in particular safety.

Fifth while we are continuing the dialogue with new customers, we are doubling our efforts to emphasize the growth in our existing customer relationships, where we believe there is still a great deal of additional value to capture.

Finally, and importantly, we are focused on being good stewards of all our resources, including our cash balance during this period of growth.

In addition at the end of my prepared remarks, I will address the current status of the Borgwarner joint venture relationship.

Here's how we have made progress in each of the areas I just described.

Industrialization.

We installed our second production line at our Vernon facility in Q3.

We have made good on our commitment to have approximately one hour.

One gigawatt hour of installed capacity by the end of this year.

We are on schedule to achieve three gigawatt hours of installed capacity earlier than our planned goal of 2023.

We increased our product revenue ramp by almost 500% from Q2 to Q3.

We secured a new facility in Cyprus, California for growth and expansion of production and R&D labs.

We believe that moving to this facility is important and will enable romeo to meet increased customer demand.

Importantly, it will allow romeo to double our onsite testing and lab capacity to more efficiently support three key requirements production continuous product improvement and ongoing research and development.

Supply chain itself.

One of the most challenging headwinds in the third quarter has been our global supply chain.

Just like many other companies we have been impacted by global supply disruptions and it has been a source of inefficiency and delays in our production activities during the quarter.

We have spent significant energy focusing on the supply chain. This includes seeking and qualifying second sources.

Focusing on improving supplier quality and sourcing new components in support of evolving customer requirements.

In addition to the cell supply agreement, we announced last quarter with an important supplier. We are working towards diversifying ourselves supply by pursuing both short and long term agreements with other suppliers.

In addition, we improved our improved our parts availability for the production line, increasing throughput and where feasible or stockpiling inventory today to avoid part shortages in Q1 and Q2 of FY 'twenty two.

On our team.

As part of our increased focus on supply chain and manufacturing we have strengthened our team in those key areas in those areas with key hires.

Two key hires to note are Pierre will vary Pierre is a seasoned global supply chain veteran with over 30 years of experience in clean energy and technology.

Our motto pillar <unk> role is to lead the industrialization of our future lines, bringing since experience from Tesla Telecom and Chrysler.

Market strategy.

The market pricing for cylindrical battery sales has changed dramatically since the time when many of Romeo sales contracts were signed.

As a result Romeo has initiated discussions with several of its customers to address the volatility of pricing itself and other critical materials to support our long term relationships.

Customers.

I have spoken to and visited each and everyone of our production customers and I am working to understand what they need and how Romeo can deliver better performance and be a better supplier.

I have made it my personal priority to strengthen these partnerships.

Cash management liquidity.

It is not surprising that a tech company entering the growth phase of its lifecycle requires cash for people parked equipment and R&D.

The team at Romeo was focused on being good stewards of cash, yes, we face a number of economic realities, including significant expenditures related to securing long term cell supply and investing in our new cypress facility.

Cary will speak more to this point, but we are assessing all options related to our capital structure in order to continue our growth trajectory and meet our full potential.

The Borgwarner joint venture.

Before carry walks you through the third financial quarter highlights and our near term revenue and capital outlook.

I want to close with a few words on our recent announcement about our Borgwarner Romeo power joint venture.

On October 26, we announced in a form 8-K that Borgwarner had delivered a written notice to Romeo that the Borgwarner was exercising its right to put its ownership stake in the joint venture at Romeo.

This was the result of many conversations between Romeo and Borgwarner about the future of the JV since borgwarner announcement of its intention to acquire Alcosol.

Borgwarner was a useful partner for Romeo and May 2019, when the joint venture was formed.

<unk> was a startup company at the time facing the daunting task of planning for production in assembling a global supply chain.

But <unk> has matured as a company since that time.

We have expanded our team and expertise and we are confident.

That we can internally manage the production and supply chain functions going forward without support of Borgwarner, particularly after we move to our new homes in Cyprus, California.

The transaction is subject to the determination of a valued by a third party valuation firm and that process will take some time.

It's too early to comment about the financial aspects of this transaction on this call as doing so would be speculation only.

But rest assured that Royal mail is working diligently to prepare for the successful acquisition and integration of the joint venture assets and activities.

With that I will hand, the call over to Kerry.

Thanks, Susan and good afternoon, everyone.

Revenues were $5 8 million for the third quarter of this year and now stands at $7 7 million for the first nine months.

Third quarter revenues. This year were about eight five times revenues in the same quarter last year and reflects the continued ramp up of <unk>.

So as we have been expecting.

Susan discuss the radar shipments in the quarter was hampered somewhat by various issues related to components. We purchase for example wall product refinements requested by certain of our customers during the quarter will be analyzed.

Eliminating our ability to commit to build inventory of the parts potentially involved.

In addition, we also were affected by general supply chain constraints sort of a broad based negative impact throughout the economy.

We also incurred throughput challenges related to the internal production scale up which are not uncommon when new high volume processes are introduced to the operating environment.

To address continued growth. We also installed a second production line, which required equipment commissioning and caused some inefficiencies.

Susan commented, we are investing considerable focus of attention and investing an additional tailwind to address reliability and efficiency of both our supply chain and internal production processes, both of which have shown progressive improvement over the past few weeks.

Despite improvements occurring, particularly with respect to our production rates. We also continue to face some uncertainty related to our primary commercial launch the continuing impact of customer driven product design refinements unrelated availability of purchase components involved are variables, which.

May affect us in the fourth quarter.

Based on these.

Excuse me variables, we are revising our full year 2021 revenue guidance range to $18 million on the high end and $15 million on the low end. These ranges will continue to reflect sequential quarterly revenue growth, but at a lesser pace than previously expected for the reasons.

Just described.

We ended the third quarter of this year with $181 million of cash cash equivalents and investments, which I will refer to as cash for the sake of simplicity.

This compares to $268 million at the end of the previous quarter.

Approximately three quarters or $65 million of the quarterly decline reflects the prepayment we made to secure a long term battery cell commitment we disclosed in a form 8-K during the third quarter. This prepayment will be recouped fully in the form of a credit against the per unit cell price, we will pay.

So long as we annually purchase the minimum volume itself committed to in the long term agreement, which we fully expect to do.

Excluding the $65 million cell prepayment cash declined $22 million for the third quarter of this year.

While our available cash was still substantial at the end of the third quarter of this year, we do expect the rate at which we consume cash to increase as production continues to ramp up to support revenue growth and as we make further investments in our organization and facilities, we continue to prepay for both battery cells and.

Many other materials reflective of our trade status as a startup company. While we will continue to request trade credit terms from suppliers, we cannot guarantee or estimate for what degrees such credit will be made available to us to lessen the working capital requirements. We.

We will also continue to investigate transactions to secure additional committed future supply for battery cells, which could require substantial prepayments to secure such commitments.

Finally, as Susan noted Borgwarner has notified us of its intention to put its investment in our joint venture to Romeo power, while the value associated with Borgwarner has ownership share of the joint venture is uncertain. We also must consider this event and our capital planning.

To be prepared to continue funding the various key initiatives supporting growth of the business. We are assessing various options associated with our capital structure and may seek additional capital sometime over the next several months.

With that we will now address your questions. So I will turn the call back over to our operator, Charlie Charlie.

Thank you if you would like to ask a question. Please press star followed by one on the telephone keypad now if you change your mind just stall followed by two.

As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.

There are no questions on the telephone lines at this time.

Thank you everyone for joining us today go team Romeo.

This concludes today's call. Thank you for joining you may now disconnect your lines.

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