Q4 2021 Romeo Power Inc Earnings Call
This sequential growth confirmed our expectations and resulted in 2021 revenue of $16 $8 million for the full year, which was consistent with the outlook of $15 million to $18 million. We provided at the time of our third quarter conference call.
For 2022, we are again, providing an outlook on revenues, which we believe is the best indicator of the progress we continue to make.
To put this outlook in the right perspective. It is important to understand that we are changing the arrangement with respect to battery cells used in our manufacturing a product for a major customer and this will have an impact as to how we frame our revenue guidance I'd also point that out that there is a footnote.
On the bottom of page four that also states at this point, it's a very very important.
Thing to understand.
With respect to these cells previously we procured them. So the related value was included in both our revenues and our cost of revenues.
Boeing forward, our customer is procuring and Consigning. These battery cells that go into the product we make for them as a result, the value of battery cells, which is the largest single component of the bill of material will no longer be part of either our revenue or our cost of revenue for this customer.
This has no impact on the volume of products that we are shipping to our customer and if anything. It is also working capital positive for us since we will not have to carry.
The working capital commitment for this costly component.
As a result, our 2022 revenue outlook is in the range of $40 to $15 billion $40 million to $50 million for the year.
However, again very important to understand because of changing to the cell consignment arrangement. This guidance would otherwise be approximately double our stated outlook if occurring on a comparable basis. So again, please keep in mind structural change to the cell and how it flows through our P&L.
If it were comparable to the prior year, our outlook would be approximately double the stated range that we've given you.
Yes.
As a result, our 2022 revenues would be in the range of five to seven times higher than what we achieved in 2021, if we looked at this again on a comparable basis.
Turning to liquidity. Please reference the right side of the slide.
We ended the year at $120 million of cash cash equivalents and investments, which compares to $181 million at the end of the previous quarter cash.
Cash consumed in the fourth quarter included approximately $23 million for inventory reflective of our growth $6 million for higher accounts receivable again reflective of our growth and $5 million for capital expenditures. The remaining net cash consumption, primarily funded operating loss.
Yes.
Please note. This liquidity is as of December 31, 2021, and thus does not remove the payment that we made to borgwarner in February of a net $25 million to purchase their share of the joint venture.
This February we secured a $350 million standby equity line of credit I'm going to refer to this simply as an <unk>.
While I won't go into all the details we fundamentally have the right to sell common shares for cash to the counterparty on the E lock with related fees represented in a three 5% discount to the market price when we sell as a result, the fees are essentially are incurred on a pay as you go basis and this is.
As important as it provides optionality for us and because we are not obligated to sell any number of shares under this arrangement.
While we intend to use the <unk> the timing and amount sold will consider cash needs our share price and the dilution impact.
I encourage you if you have interest to review the specific terms of the <unk> agreement, which has been filed with the SEC.
We also will continue to assess other alternatives related to our capital structure to ensure we support continued growth in other initiatives important to shareholder value accretion revenue growth improving the price to performance ratio of our technology and products investment in R&D.
Reducing the cost of our products and controlling operating expense all our areas, we will balance and focus on.
With that financial overview I'd like now to turn the call back to Susan for a review of our overall corporate strategy and our priorities for fiscal 2022, Susan Thank.
Thank you Carrie.
As you have already heard it note today.
Seven months.
Enhanced and rebuilt a number of foundational elements that support this company.
So I wanted to take a minute to restate what Romeo is all about especially for those of you who may just be getting to know it.
Let's begin on slide five.
We are an energy technology leader focused on electrification installations.
Or more specifically highly dense.
And safe commercial vehicle electrification.
We historically have focused on complex commercial vehicle applications.
As I just mentioned, we are broadening our reach into the market for electrification of various modes of transportation and applications are high technology energy storage is meeting.
Our product consists of a combination of hardware and software that manages our battery systems.
So let's work together in an integrated and seamless manner.
Which is critical to providing.
<unk> performing exceeding standard.
Battery system performance measured in many ways, including industry, leading energy density charged time and range.
And he's a configure ability to fit customer needs.
Slide six provides a better sense of how we go to market.
We innovate at all stages of our battery technology design application engineering manufacturing and end of life disposal.
We design battery systems around the specific cell selected by our expert team of battery cell scientists.
While the industry view sales as a commodity.
Their application and design are not.
This is why we will continue to reinforce the need for a strong battery cell team.
Sales of our package using our proprietary integrated structural components.
Thermal management features and manufacturing techniques to maximize energy density safety and performance.
The Configurable nature of our battery packs allows us to address challenging space constraints and support multiple voltage requirements and market needs.
Beyond vehicle applications, we also envision extending the lifecycle of our batteries to extract further value.
For example, our packs and modules are suitable for redeployment in energy storage applications after removal from vehicles.
This allows for depletion of their remaining state of charge after they reach the 80% threshold.
We have partnered with an expert lithium ion battery cycling company now called retrieved technologies to provide a responsible disposition plan at the end of battery life.
Now, let's spend a few minutes on the critical importance of safety.
Please turn to slide seven.
The electrification of vehicles is obviously, a new and rapidly advancing market.
In fact, it is so new that safety standards for electric commercial vehicles are just developing.
As someone who spent years in the automotive market I know how critical safety is and this I am extremely proud of the important.
You have to put on safety at Romeo.
This includes the recent introduction of new sensors and software algorithm upgrade which allow romeos products to detect the onset of a significant failure anomaly.
External testing has validated that our software provides a safety window at 18 minutes once an anomaly is detected.
New safety standard like global technical regulation number 20, our GTR 'twenty require a safety window of only five minutes.
Thus our solution is more than three times, the published globally accepted standard today, and we are not aware of any competing products that can match. These features.
Now I would like to take a few minutes to discuss our end markets.
Today and tomorrow.
Please turn to slide eight.
Our primary focus has been the electrification of commercial vehicles.
In particular, creating solutions for medium and heavy duty applications.
You can see some of the initial examples of vehicles that are leveraging our technology on this slide and this is only the beginning.
Further all of our battery packs are manufactured in southern California.
Which given the complex state of the global World Today is a competitive advantage as we are located in the heart of vehicle electrification.
Slide nine gives you a better sense for how we are expanding our commercial opportunities our strategy to expand into other markets. This year has been shaped by several factors.
Our current customers are heavily concentrated in the commercial vehicle industry, while electrification of all modes of transportation is accelerating.
Our solutions can be applied to multiple new end markets with no additional development engineering.
And our recent purchase of the prior joint venture affords us the opportunity to pursue a diverse mix of strategic relationships.
So in 2022, we are widening our focus to develop customers in other market segments, including marine last mile vehicles, construction, agriculture equipment and ancillary power systems.
Each of these market segments also benefits from the safety energy density and space efficiency properties of Romeo's batteries.
The existing configurations of our batteries fit the needs of these industries in their current configuration with no redesign required. So let me just repeat what I said no redesign required.
The commercial acceleration and diversification of our opportunity is not just a long term plan, it's real and we are making incremental progress every day.
Slide 10 gives you a more visual representation of that.
Already in only the first two months of 2022.
We have finalized the three year contract extension with a long standing customer and commercial vehicle technology.
Fulfilled the first orders for our marine customer that offers multiple electronic electric vessels.
And delivered initial samples to customers and for other market segments, who are testing romeos product for potential integration into their respective electrification plants.
As the slide depicts the engagement cycle from initial samples to complete production contracts in vehicles and service can take up to 24 months, but we are adding new industry verticals in many markets you might not have thought we're exploring electrification and many of them will have faster time to market.
The diversity of these end markets is clear on this slide and this is only a fraction of what we hope to see moving forward.
Slide 11 provides a view of our new homes as we move into 2022, our focus is shifting to moving to our new facility in Cyprus, California.
Romeo is proud to be a California based company.
Moving into this facility will allow us to increase our installed production capacity and efficiency.
Our lab space and leaves room for future expansion.
We expect to complete the transition from burn into Cyprus by the end of July .
One thing I want to speak more about is our R&D and our cell science team many companies build batteries are.
Our company is relentless and focusing how to use a common component the battery cell and optimize its power and capabilities for our customers who demand safety.
High energy output and rapid charge time.
As important with our R&D facilities in the same buildings as operations, we are continuing to prioritize design for manufacturing and design for service.
We are as focused on the user experience with our battery as we are on our own manufacturing efficiency.
Thus, our new facility is a game changer.
It keeps all of US together under one roof with one mission and allow us further growth without moving.
We are also preparing our high volume lines, which are being built today for installation in the second half of 2022. This capacity will come online in Q1 of 'twenty three in order to meet our expected increase in demand from our diversification efforts.
I will end our prepared remarks today with a review of our strategic priorities for this year on slide 12.
We believe these priorities individually and collectively are focused on driving long term shareholder value.
Fulfill our commitment this is table stakes what.
What we began in the second half of 'twenty. One is now accelerating in 2022.
This is an exciting time to be in the electrification industry, we must remain nimble and exceed customer expectations.
For me the CEO to the person on the production line proudly building our products all of US are aligned on these objectives.
Leverage Cyprus as I noted earlier cypress as a game changer for us with pandemic restrictions abating as well as this outgrowing Vernon we need to regroup under one roof as a total Romeo team Cypress gives us the ability to do this while accelerating and increasing our leverage around design for manufacturing and service we have.
A world class R&D team and I truly look forward to starting our future together in Cyprus.
Advance, our leading R&D and IP continued investment in R&D is fundamental to improving our position in the company landscape and to secure a fair return for products.
While being prudent in our spending overall, we will continue to focus on advancing the value of our technology.
Expand and diversify our opportunities we dedicated a fair amount of time during today's discussion on how critical it is for all of us to capitalize on the new Optionality. We have now that we have full control of our technology and business direction.
We will continue to aggressively look for ways to advance our products and solutions into new markets. This will reduce customer concentration and drive top line growth as the market for electrification continues to expand rapidly.
Prudently manage costs.
As I mentioned R&D investment will remain a priority.
Next we need to achieve efficiencies with higher manufacturing throughput raise productivity and reduce waste.
All our key objectives going forward to improve cost leverage of the business.
There are numerous initiatives across the business focused on these goals lastly.
Lastly, SG&A expense has grown as was expected as we are a public company, we will continue to carefully balance growth against expense.
To conclude we navigated a period of tremendous change and evolution in our nascent industry in 2021, but we still remain highly proactive and servicing our customers rebuilding our management team and repositioning the business for long term success.
We have the right team.
The right technology.
And the right platform to drive optimal success for Romeo and are looking forward to sharing that journey with all of you.
That concludes our prepared remarks, and I will now turn the call over to the moderator for Q&A.
Thank you if you'd like to ask a question. Please do so now by pressing star followed by one on your telephone keypad.
Preparing to ask your question. Please ensure that your device and your microphone is unmeasured locally if you change your mind and wish to withdraw your question from the queue. Please press star followed by <unk>.
Our first question comes from John Craig from Invesco Partners. John Your line is open.
Yes. Thank you.
What I'm curious about is in the previous quarter, we had a supply agreement from LG.
LNG supply.
And it was announced and then it was deleted and never mentioned again I'm curious.
How were proceeding with that and secondly.
Why is it that there is a habit with our company here.
Not informing the investment community of material and beneficial information alliances sales orders and the like we kind of feel like were booked in darkness and feel that it might have contributed to the precipitous drop in the share price are we going to be addressing that in the future and if not why so.
Yeah.
Well, let me.
Try to address both of those I think number one with respect to the.
Cell supply agreement. The 8-K speaks for itself, so I would only refer back to that.
With respect to the.
Degree or the pace at which we're offering information we speak when we have something that we feel is appropriate to disclose to the public we're.
We're not going to sit here and just chatter for the sake of chattering will talk about important.
<unk> of the company when those are achieved and we are prepared to do so.
Well, we appreciate that.
Yes, what we find is by not hearing anything from the company. It's almost as if we're asleep. So maybe we can just.
I think thats something productive that we can mentioned in the future and I'll leave it in your hands to do that thank you.
Okay. Thank you.
Our next question comes from Gabe Daoud from Cowen Gabe Your line is open.
Hey, Thanks. Good afternoon, everyone. I was curious if you could maybe just explain a little bit more.
This consignment issue with the sales and the impact to revenue.
You explained it in the prepared remarks, but I think a little bit more color would be helpful.
Yes, sure <unk> been nice to hear from you by the way.
I think I.
It might be a little bit redundant, but let me step back maybe a half a step.
As you are aware as most of you are aware the supply demand.
Balanced with regard to cylindrical battery cells has been somewhat out of whack for for the year, where capacity has been running well short of demand. So as is typical in that kind of a situation the product goes on allocation.
On a product goes on allocation and everybody is worried about whether it's building batteries are building vehicles I think it's very natural for players in the market to go out and try to secure as many battery cells as they have again very typical for an allocation situation and thats exactly what nickel it did.
And as a result of that.
Because they are able to secure sells directly.
Was.
I think very natural for both of us to work together, so they could consigned to Celsius received.
To us for us to then assemble into the product that we shipped back to them now the mechanics of it all.
The business situation the mechanics of it all because because we do not own those cells.
Will not be billing them, if you will or including that value in the invoice.
And we also as a result of that will not be showing that.
Comparable cost in our cost of sales our cost of revenues as it's referred to today. So everything just kind of get the netted down basically doesn't affect the volume of business. We're shipping at all.
Quite honestly for us it takes the working capital carrying cost off of our books. So we're fine with that we're still able to service our customer as we would have in any event and they are still getting batteries to be able to build the vehicles. So I.
I think it all works out, but you got to make sure I reiterate reiterated more than once I want to make sure everybody understands the mechanics, because it does have an impact on the reported revenues and the reported cost of revenues and <unk>.
I'll say it one more time also if we were looking at things on a pure apples to apples basis.
Our revenue guidance would have been essentially double of the range that we put out there.
Yes.
Thanks Carey.
Okay, maybe just following up the Cyprus facility have you talked about what the capacity is coming out of there.
Susan you mentioned I think there should be some new capacity ready by the first quarter of 'twenty three but how should we think about the annual output now that facility.
And we have discussed this in.
In the last call as well as this call will move the capacity Thats herein Vernon, which we stated is three gigawatt and we were constrained before to six eight so we have the opportunity now with our.
Current module line.
Advantage to having an automated line versus the manual lines. We have now is as I said in my <unk>.
In my remarks is we're doing simulations and we are continuing to sweat those assets. So we're looking forward to getting at least the prior six eight and going beyond that without having to move we've really built our manufacturing team here.
So we will have the ability to replace the we will move the semi automated we will add the automated as volumes grow we will get as much as we can but.
We at least are holding at the seven Gigawatts we have previously.
Mentioned, but I'm expecting to be able to go beyond that.
But maybe a couple of other things too.
The new capacity will go through a ramp up.
As Susan mentioned at the beginning of next year, we're going to be bringing in two new production lines, which are going to be.
Different from the perspective that there is going to be a higher degree of automation in them and that's great. We have gone through simulations of how it's going to how the product is going to flow and thats, great, but with new production capacity. It always takes some time to ramp things up and get used to how we run the equipment.
I think the most important thing maybe.
Stepping back is without trying to quote.
What the capacity is in terms of Gigawatts.
And that can be affected by a lot of variables along the way I think the most important thing is to Ambac is number one we're going to have plenty of capacity to service our business. After we move in and we get those production lines put in we will clearly communicate with you and keep you up to speed. If we feel like we have to make additional.
Capital investments to grow capacity for the future that quite honestly would be a nice problem to have to deal with because that means that we are doing very well in the market, but we'll continue to communicate to us.
As to where that stands.
Okay. Okay. Thanks, that's very helpful. And then just one last one for me just following up on the <unk>.
Cell supply could you just comment.
Sure.
Inventory on hand.
We certainly go through the K and just look at the details again, but so you certainly have enough cells to satisfy.
The revenue that you saw.
Forecasting for 2022, and then how should we think about 'twenty three and should we expect.
More cell supply agreements.
Over the next couple of months thanks, everyone.
I think a couple of things Gabe number one as far as.
The sell commitments we have.
We're in good shape with regard to the business that were.
Looking at in guiding towards in 2022 as far as new agreements are concerned we're going to continue and this is.
As Susan talked about the importance of our battery cell expertise and the scientists that we have behind that and I think you may have met Ak's Fuji in the past is ahead of our technical function, our CTO and I think this is a differentiator.
<unk> for us when it comes to.
Those that we compete with as we continue to look at that.
And look in the cell science.
How those cells.
Perform we're going to continue to look at alternatives, because there may be new generations of cells or new producers manufacturers of cylindrical cells are that for whatever reason come up with a better fit for a targeted part of our market and if that occurs then clearly we're going to be looking at alternative.
Over different or added supply sources.
Key is meet the market's needs.
Find the right technology to do that sometimes that can go back to the cell itself and we'll adjust accordingly, I am not going to predict to you that we're going to have new cell supply agreements or commitments.
Similar to the long term agreement, we put into place, but we're going to.
We will always be actively assessing that part of the technology.
To see how we can turn that into an advantage for our customers.
At this time, we have no further questions I will now hand back to Susan Brennan for any closing comments.
Yes.
Thank you all for joining today's call.
We're excited about the future of Romeo power and believe we have the strongest team technology and solutions on the market today.
We appreciate your continued support as we charge forward have a great night.
Thank you everyone for joining us today. This concludes our call. Please now disconnect your lines.
Okay.
Sure.