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spk01: Hello and welcome to the Romeo Power third quarter 2021 financial results and webcast. My name is Charlie and I will be coordinating your call today. If you would like to ask a question during the presentation, you may register to do so by pressing star followed by one on your telephone keypad. I will now hand you over to your host Kerry Sheba, Chief Financial Officer to begin. Kerry, please go ahead.
spk00: Thank you, Charlie. Good afternoon, everyone, and thank you for joining us today for Romeo Power's Q3 earnings call. By the way, I apologize. I have a bit of a scratchy throat, but I'm going to speak as loud as I can. Before we begin, I want to remind everyone that this conference call will contain forward-looking statements, including our expectation of future results and sales, availability and cost of inputs, production capacity, market dynamics, and other items. Our actual results may differ materially and adversely from those projected in these forward-looking statements. Additional information concerning factors that could cause the results to differ materially and adversely from these forward-looking statements are contained in our press release that went out earlier today as well as the disclosures in our public filings with the SEC. Today's call may also include a discussion of non-GAAP financial measures, as that term is defined in Regulation G. 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, please welcome Susan Brennan, our Chief Executive Officer of Romeo Power. Susan.
spk02: Thank you, Kerry, and thank you all for joining. Although I've only been at the CEO helm for 12 weeks, Because I was a member of Romeo's board during the prior nine months, I hit the ground running. In those 12 weeks, we've made some important progress and taken some very important steps to position Romeo for a successful future. I have led many teams through transformation. I have developed a successful playbook that I'm in the process of applying to the work at Romeo, and we are doing so with an appropriate sense of urgency. My top areas of focus have been, first, We have ramped up our manufacturing capabilities and have focused intensely on our industrialization process to further advance those capabilities, both for the immediate and long-term. Second, we have made significant headway in securing cell supply and addressing a variety of other supply chain issues, giving us confidence that we will be able to meet our customer demand moving forward. Frankly, when I arrived three months ago, we were behind the eight ball. but we have significantly reduced downtime related to part shortages. Third, we've made some key hires to strengthen our manufacturing capabilities and to create a more strategic and reliable supply chain. Fourth, when I came on board, one of the first things I asked our team to do was to reevaluate our market strategy to make sure we are playing to our strengths. As a result, we are in the process of evolving our strategy. We are going to focus our resources where we have a competitive right to win, namely what customers value most, energy density, increased range, system 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 Board-Warner 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 gigawatt hour of installed capacity by the end of this year, and 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 Cypress, 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 and sales. 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 self-supply agreement we announced last quarter with an important supplier, we are working towards diversifying our self-supply by pursuing both short and long-term agreements with other suppliers. In addition, we have improved our parts availability for the production line, increasing throughput, and where feasible, our stockpiling inventory today to avoid part shortages in Q1 and Q2 of FY22. On our team, as part of our increased focus on supply chain and manufacturing, we have strengthened our team in those areas with key hires. Two key hires to note are Pierre Claverie. Pierre is a seasoned global supply chain veteran with over 30 years of experience in clean energy and technology. Ahmad Attila. Ahmad's role is to lead the industrialization of our future lines, bringing his experience from Tesla, Taycom, and Chrysler. Market strategy. The market pricing for cylindrical battery cells has changed dramatically since the time when many of Romeo's sales contracts were signed. As a result, Romeo has initiated discussions with several of its customers to address the volatility of pricing of cells and other critical materials to support our long-term relationships. Customers. I have spoken to and visited each and every one 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 life cycle requires cash for people, parts, equipment, and R&D. The team at Romeo is focused on being good stewards of cash, yet we face a number of economic realities, including significant expenditures related to securing long-term cell supply, and investing in our new Cypress facility. Carrie 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 Board of Warner Joint Venture. Before Carrie 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 26th, we announced in a Form 8K 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's announcement of its intention to acquire Acasol. BorgWarner was a useful partner for Romeo in May 2019 when the joint venture was formed. Romeo was a startup company at the time facing the daunting task of planning for production and assembling a global supply chain. But Romeo 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 home in Cypress, California. The transaction is subject to the determination of a value by a third-party valuation firm, and that process will take some time. It is 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 Romeo 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.
spk00: Kerry Sautner Excuse me. Thanks, Susan, and good afternoon, everyone. Revenues were $5.8 million for the third quarter of this year and now stand at $7.7 million for the first nine months. Third quarter revenues this year were about 8.5 times revenues in the same quarter last year and reflect the continued ramp-up of production as we have been expecting. As Susan discussed, the rate of shipments in the quarter was hampered somewhat by various issues related to components we purchased. For example, while product refinements requested by certain of our customers during the quarter were being analyzed, It limited our ability to commit to build inventory of the parts potentially involved. In addition, we also were affected by general supply chain constraints that have had 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. As Susan commented, we are investing considerable focus of attention and investing in additional talent 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 and related availability of purchase components involved are variables which may affect us in the fourth quarter. Based on these 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 I 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 sell price we will pay so long as we annually purchase the minimum volume of sales committed to in the long-term agreement, which we fully expect to do. Excluding the $65 million sell 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 to what degree such credit will be made available to us to lessen working capital requirements. 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, Board Warner has notified us of its intention to put its investment in our joint venture to Romeo Power. While the value associated with Board Warner's ownership share of the joint venture is uncertain, we also must consider this event in 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?
spk01: Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, it is star followed by 2. As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad now. There are no questions on the telephone lines at this time.
spk02: Thank you, everyone, for joining us today. Go Team Romeo.
spk01: This concludes today's call. Thank you for joining. You may now disconnect your lines.
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