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spk00: Welcome to the Romeo Powers fourth quarter and year-end 2021 earnings conference call and webcast. At this time, all participant lines are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note this conference is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to your host, Ashley Grunberg of the Alpha IR Group. Please go ahead, Ashley.
spk02: Thank you and welcome. Joining me today are Susan Brennan, Chief Executive Officer, and Kerry Sheba, Chief Financial Officer. Please note that our fourth quarter and year-end earnings press release and a PowerPoint that we will be referring to today are both posted on the company's website at Romeopower.com, and our 10-K was also posted earlier today. Slide two of that PowerPoint outlines our safe harbor statement. Along those lines, I want to remind everyone that this conference call will contain forward-looking statements. including our expectation of future results, sales, availability, and cost of imports, production capacity, market dynamics, liquidity, cash spending, and other items. Our actual results may differ materially and adversely from those projected or discussed 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. The company is under no obligation to update forward-looking statements. 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. With that, please turn to slide three, and I'll turn the call over to Susan for a few opening remarks.
spk01: Thank you, Ashley. Good afternoon, and thank you all for joining us today. As Ashley mentioned, we're going to use a PowerPoint to guide our conversation as we wanted to provide a more holistic overview of our business today and our path forward. In terms of our agenda, I will start with a high-level review of our recent highlights, then Carrie will walk us through our financial results and 2022 outlooks. I will then close out with a deeper discussion of our business, our broadening in-market focus, and some recent commercial success examples. Our priorities for 2022? We will then take your questions. 2021 was a pivotal year. We gained momentum in the second half of the year as our new leadership team aligned and began to execute. In January of this year, we added two additional members to our executive team. Anne Devine as our Chief Operating Officer, and Rose Rogers as our Chief People Officer. Both have tremendous experience in critical areas our company needs, operations and production, and talent identification and development. With their addition to the team, our leadership transition is now complete. The lifeblood of this company is our industry-leading technology and intellectual property, and we continue to invest and advance our platform. We have nearly 100 engineers on the Romeo team, 50% of which are battery scientists. And our customers highly respect the talent and depth of knowledge we have developed around large-scale electrification solutions. The following are a few areas where we recently advanced our technological lead. Our team achieved several key milestones in battery safety for commercial vehicles over the last several months. Our products were developed with a rigorous requirement to set the standard for safety in this rapidly developing market. We believe the safety performance engineered into our products as tested against safety standards is both differentiating and highly valued by customers. I will speak more in depth around this later in the presentation. We announced a collaboration agreement with Dynexis Technology. a leader in battery sensing solutions and data-driven battery intelligence in the latter half of 2021. Our engineers continue to work with the Dynexis team to develop new battery diagnostics and predictive tools, and we are looking forward to the team's collective results. And third, we successfully validated the pre-production stage for a major customer who now has trucks and service that are powered by our technology and battery packs. The customer recently noted on a public call how well those initial trucks are performing. They have completed 200 plus mile journeys on a single charge and are running routes with 98% uptime so far. While our solution is just one part of that vehicle, it is one of the critical components of the systems and we are highly encouraged by their initial success. Shifting gears to operations, In the second half of 2021, we accelerated our transition to accommodate future growth. This included increasing our production team by nearly fourfold. We added a third shift as well. And year to date in 2022, we have average daily production rates that are 37% higher than the fourth quarter of 2021. Lastly, we secured our future home in Cypress, California, and are beginning the process of transitioning all operations there. As part of the preparation, we have completed multiple simulation reviews of our future production lines as they are being designed and constructed for delivery. On the commercial front, we were extremely active as well. As you saw in our press release last week, we signed a three-year extension of an existing supply agreement with one of our long-standing customers. This customer is a leader in commercial vehicles and the minimum value of the extension is approximately $17 million with additional upside possible over the same time period. Additionally, we focused our commercial team and began to pursue new electrification opportunities that will help us widen and diversify our client base over time. As a result of these new efforts, we began delivering samples to customers in rapidly emerging market sections such as marine, defense, and last mile delivery. This morning, we were pleased to announce the first phase of a collaboration with Indigo Technologies in which Indigo will develop its lightweight commercial vehicle in conjunction with our advanced battery technology. This first phase is expected to culminate in the debut of Indigo's full-size Flow show car at the LA Auto Show later this year. Moving to our supply chain. As with all companies today, we continue to manage our supply chain daily, hourly, and weekly. We continue to make headway in securing cell supply and other critical components. This included the signing of a long-term supply agreement with a Tier 1 battery cell supplier in the third quarter of 2021, and we are driving efforts to procure semiconductors through new supply relationships. Our team is working to be predictive in availability of all parts, and we will remain as diligent as possible to continue to navigate this dynamic environment. We completed the acquisition of BorgWarner's interest in the joint venture between Romeo Power and BorgWarner. This was a significant milestone for Romeo Power. We now fully control one of our most valuable assets, our intellectual property. We can now decide how we use that asset, and more appropriately, prioritize the scope and focus of our future R&D efforts to maximize our future return on investment. Most importantly, we are free to pursue a broader range of strategic and customer engagements that were previously restricted during this prior partnership. This total control should accelerate commercialization of our products across various vehicle types and electrification applications worldwide. And we are excited to have completed this important step. To summarize, I am exceptionally proud of the Romeo team. We have taken on challenges with focus and our execution of the technology continues to improve. We are strengthening partnerships with current customers while simultaneously building new relationships with prospective customers as the nascent electrification landscape changes and opportunities avail themselves. I am looking forward to a strong Q1 in 2022. We have assembled a great team and remain relentless in pursuing the mission of the company, from the CEO to the production floor. All of us have rallied around bringing electrification to the market with safety, quality, and speed. With that high-level overview, I would now like to turn the call over to Kerry for a view of our financials. Kerry?
spk04: Thank you, Susan. By the way, I just am looking. I don't think our 10K is up on the SEC website yet, but I'm sure it'll be filed shortly. So I just wanted to make sure everybody's aware of that. Okay, as Susan mentioned, our fourth quarter results demonstrate continued progress as we look to leverage our new team, commercial function, and industry-leading technology. If you'd please turn to slide number four, I will spend a few minutes on some of the key financial items. Starting on the left, we reported $9.1 million of revenue for the fourth quarter of last year, which was 57% higher than revenues in the previous quarter. 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 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 of product for a major customer, and this will have an impact as to how we frame our revenue guidance. I'd also point out that there is a footnote on the bottom of page four that also states 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. Going 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 $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 a 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. 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 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 losses. Please note this liquidity is as of December 31, 2021, and thus it 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 ELOC. 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 ELOC, with related fees represented in a 3.5% discount to the market price when we sell. As a result, the fees essentially are incurred on a pay-as-you-go basis. And this is 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 ELOC, 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 ELOC 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 and 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 are 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?
spk01: Thank you, Kerry. As you have already heard us note today, over the last seven months, We have enhanced and or rebuilt a number of foundational elements that support this company. So I want to take a minute to restate what Romeo is all about, especially for those of you who may just be getting to know us. Let's begin on slide five. We are an energy technology leader focused on electrification solutions, or more specifically, highly dense and safe commercial vehicle electrification. We historically have focused on complex commercial vehicle applications. But as I just mentioned, we are broadening our reach into the market for electrification of various modes of transportation and applications where high technology energy storage is needed. Our product consists of a combination of hardware and software that manages our battery systems. Both work together in an integrated and seamless manner. which is critical to providing safety performance exceeding standards, battery system performance measured in many ways, including industry-leading energy density, charge time, and range, and ease of configurability 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 cells selected by our expert team of battery cell scientists. While the industry views cells as a commodity, their application and design are not. This is why we'll continue to reinforce the need for a strong battery cell team. sells 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 in-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 and 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 recycling company, now called Retrieve 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's spent years in the automotive market, I know how critical safety is. and thus I am extremely proud of the importance we have put on safety at Romeo. This includes the recent introduction of new sensors and software algorithm upgrades, which allow Romeo's products to detect the onset of a significant failure or anomaly. External testing has validated that our software provides a safety window of 18 minutes once an anomaly is detected. New safety standards, like Global Technical Regulation Number 20, or GTR20, 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, both 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 and 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 a three-year contract extension with a long-standing customer in commercial vehicle technology, fulfilled the first orders for a marine customer that offers multiple electric vessels, and delivered initial samples to customers in four other market segments who are testing Romeo's product for potential integration into their respective electrification plans. As the slide depicts, the engagement cycle from initial samples to complete production contracts and vehicles and service can take up to 24 months. But we're adding new industry verticals in many markets you might not have thought were exploring electrification, and many of them will have faster time to market. The diversity of these end markets is clear on the slide, and this is only a fraction of what we hope to see moving forward. Slide 11 provides a view of our new home. As we move into 2022, our focus is shifting to moving to our new facility in Cypress, 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, grow our lab space, and leaves room for future expansion. We expect to complete the transition from Vernon to Cypress 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. Our company is relentless in 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 allows further growth without moving. We are also preparing our high volume lines, which are being built today for installation and the second half of 2022. This capacity will come online in Q1 of 23 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 we began in the second half of 21 is now accelerating in 2022. This is an exciting time to be in the electrification industry. We must remain nimble and exceed customer expectations. From me, the CEO, to the person on the production line proudly building our products, all of us are aligned on these objectives. Leverage Cypress. As I noted earlier, Cypress is 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 assembled a world-class R&D team, and I truly look forward to starting our future together in Cypress. 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 managed cost. 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 are key objectives going forward to improve cost leverage of the business. There are numerous initiatives across the business focused on these goals. 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 in 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.
spk00: Thank you. If you would like to ask a question, please do so now by pressing star followed by one on your telephone keypads. When preparing to ask your question, please ensure that your device and your microphone is unmuted locally. If you change your mind and wish to withdraw your question from the queue, please press star followed by two. Our first question comes from Gabe Dowd from Cohen. Gabe, your line is open.
spk03: Hey, thanks. Good afternoon, everyone. I was curious, Kerry, if you could maybe just explain a little bit more this consignment issue with the sales and the impact to revenue. You know, you explained it in the preparer marks, but I think a little bit more color would be helpful.
spk04: Yeah, sure, Gabe, and nice to hear from you, by the way. I think, and I might be a little bit redundant, but let me step back maybe a half a step. As you're aware, as most of you are aware, the supply-demand balance with regard to cylindrical battery cells has been somewhat out of whack 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 allocations. And when a product goes on allocation and everybody is worried about whether it's building batteries or 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 that's exactly what Nikola did. And as a result of that, because they are able to secure cells directly, It was, I think, very natural for both of us to work together so they could consign the cells they received to us for us to then assemble into the product that we ship back to them. Now, the mechanics of it all, that's the business situation. The mechanics of it all is because we do not own those cells, we 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 or cost of revenues as it's referred to today. So everything just kind of gets netted down, basically. It 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're still getting batteries to be able to build their vehicles. So I think it all works out, but you've got to make sure. I 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 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.
spk03: Thanks, Kerry. That's helpful. Okay, maybe just following up, the Cypress facility, have you talked about what the capacity is coming out of there? I know, Susan, you mentioned I think there should be some new capacity ready by the first quarter of 23, but How should we think about the annual output now of that facility?
spk01: Yeah, and we have discussed this in the last call as well as this call. We'll move the capacity that's here in Vernon, which we stated is 3 gigawatts, and we were constrained before to 6.8, so we have the opportunity now with our current module line, the advantage to having an automated line versus the manual lines we have now, as I said in my remark, is we're doing simulations and we're continuing to sweat those assets. So we're looking forward to getting at least the prior 6.8 and going beyond that without having to move. We've really built our manufacturing team here, so we will have the ability to replace we will move the semi-automated, we will add the automated. As volumes grow, we'll get as much as we can, but we at least are holding at the 7 gigawatts we had previously mentioned, but I'm expecting to be able to go beyond that.
spk04: Yeah, but maybe a couple of other things, too. The new capacity will go through a ramp-up. As Susan had 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's going to be a higher degree of automation in them, and that's great. We've gone through simulations of how the product's going to flow, and that's 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 to stand back 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're doing very well in the market. But we'll continue to communicate to you as to where that stands.
spk03: Okay. Okay, thanks. That's very helpful. And then just one last one for me, just following up on the cell supply. Could you just comment, you know, inventory on hand? I know 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're forecasting for 2022. And then as we think about 23, and should we expect more cell supply agreements over the next couple of months? Thanks, everyone.
spk04: I think a couple things, Gabe. Number one, as far as the cell commitments we have, we're in good shape with regard to the business that we're looking at and guiding towards in 2022. As far as new agreements are concerned, we're going to continue. And this is, you know, 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, you know, AK Shruji in the past as the head of our technical function, our CTO, and I think this is a differentiator 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 that for whatever reason, come up with a better fit for a target part of our market. And if that occurs, then clearly we're going to be looking at alternative or different or added supply sources. The 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'm not going to predict to you that we're going to have new cell supply agreements or commitments you know, similar to the long-term agreement we put into place. But we're going to, I want you to know, we'll always be actively assessing that part of the technology to see how we can turn that into an advantage for our customers.
spk00: At this time, we have no further questions. I'll now hand back to Susan Brennan for any closing comments.
spk01: Thank you all for joining today's call. We're excited about the future of Romeo Power. and believe we have the strongest teams, technology, and solutions on the market today. We appreciate your continued support as we charge forward. Have a great night.
spk00: Thank you everyone for joining us today. This concludes our call. Please now disconnect your lines.
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