|
|
|
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For The Three and Six Months Ended June 30, 2021 (Unaudited)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
APIC
|
|
Notes Receivable from Stockholders
|
|
Accumulated Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—March 31, 2021
|
130,529,147
|
|
$
|
13
|
|
$
|
416,308
|
|
$
|
—
|
|
$
|
(304)
|
|
$
|
(87,431)
|
|
$
|
328,586
|
Issuance of common stock
|
1,815,913
|
|
—
|
|
7,575
|
|
—
|
|
—
|
|
—
|
|
7,575
|
Proceeds receivable from common stock issuance
|
—
|
|
—
|
|
(7,144)
|
|
—
|
|
—
|
|
—
|
|
(7,144)
|
Issuance of common stock as contract consideration
|
650,000
|
|
—
|
|
5,018
|
|
—
|
|
—
|
|
—
|
|
5,018
|
Stock based compensation
|
—
|
|
—
|
|
8,189
|
|
—
|
|
—
|
|
—
|
|
8,189
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
149
|
|
|
—
|
|
|
149
|
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(28,674)
|
|
|
(28,674)
|
|
Balance—June 30, 2021
|
132,995,060
|
|
$
|
13
|
|
$
|
429,946
|
|
$
|
—
|
|
$
|
(155)
|
|
$
|
(116,105)
|
|
$
|
313,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
APIC
|
|
Notes Receivable from Stockholders
|
|
Accumulated Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2020
|
126,911,861
|
|
$
|
12
|
|
$
|
373,129
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(177,443)
|
|
$
|
195,698
|
Issuance of common stock
|
5,433,199
|
|
1
|
|
44,201
|
|
—
|
|
—
|
|
—
|
|
44,202
|
Proceeds receivable from common stock issuance
|
—
|
|
—
|
|
(7,144)
|
|
—
|
|
—
|
|
—
|
|
(7,144)
|
|
Issuance of common stock as contract consideration
|
650,000
|
|
—
|
|
5,018
|
|
—
|
|
—
|
|
—
|
|
5,018
|
|
Stock based compensation
|
—
|
|
—
|
|
14,742
|
|
—
|
|
—
|
|
—
|
|
14,742
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(155)
|
|
|
—
|
|
|
(155)
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
61,338
|
|
|
61,338
|
|
Balance—June 30, 2021
|
132,995,060
|
|
$
|
13
|
|
$
|
429,946
|
|
$
|
—
|
|
$
|
(155)
|
|
$
|
(116,105)
|
|
$
|
313,699
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
|
|
Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
For The Three and Six Months Ended June 30, 2020 (Unaudited)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
APIC
|
|
Notes Receivable from Stockholders
|
|
Accumulated Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—March 31, 2020
|
74,981,611
|
|
$
|
7
|
|
$
|
183,121
|
|
$
|
(9,175)
|
|
$
|
—
|
|
$
|
(176,595)
|
|
$
|
(2,642)
|
Issuance of common stock
|
3,657,261
|
|
1
|
|
3,756
|
|
—
|
|
—
|
|
—
|
|
3,757
|
Stock based compensation
|
—
|
|
—
|
|
375
|
|
—
|
|
—
|
|
—
|
|
375
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(7,025)
|
|
|
(7,025)
|
|
Balance—June 30, 2020
|
78,638,872
|
|
$
|
8
|
|
$
|
187,252
|
|
$
|
(9,175)
|
|
$
|
—
|
|
$
|
(183,620)
|
|
$
|
(5,535)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
APIC
|
|
Notes Receivable from Stockholders
|
|
Accumulated Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2019
|
74,449,847
|
|
$
|
7
|
|
$
|
181,567
|
|
$
|
(9,175)
|
|
$
|
—
|
|
$
|
(169,826)
|
|
$
|
2,573
|
Issuance of common stock
|
4,189,025
|
|
1
|
|
5,033
|
|
—
|
|
—
|
|
—
|
|
5,034
|
Stock based compensation
|
—
|
|
—
|
|
652
|
|
—
|
|
—
|
|
—
|
|
652
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(13,794)
|
|
|
(13,794)
|
|
Balance—June 30, 2020
|
78,638,872
|
|
$
|
8
|
|
$
|
187,252
|
|
$
|
(9,175)
|
|
$
|
—
|
|
$
|
(183,620)
|
|
$
|
(5,535)
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
|
|
Condensed Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 2021 and 2020 (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
Cash flows from operating activities:
|
|
|
|
Net income (loss)
|
$
|
61,338
|
|
|
(13,794)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
Depreciation and amortization
|
999
|
|
950
|
Amortization of investment premium paid
|
990
|
|
—
|
Stock-based compensation
|
14,742
|
|
652
|
Inventory provision
|
1,242
|
|
—
|
Change in fair value of public and private placement warrants
|
(118,120)
|
|
—
|
Loss in equity method investment
|
1,206
|
|
732
|
Non-cash lease expense—operating leases
|
119
|
|
115
|
Non-cash lease expense—finance leases
|
142
|
|
140
|
Derivative expense
|
—
|
|
1,386
|
Other
|
20
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable
|
(1,151)
|
|
(65)
|
Inventories
|
(3,920)
|
|
(1,245)
|
Prepaid expenses and other current assets
|
(8,377)
|
|
344
|
Accounts payable
|
5,369
|
|
535
|
Accrued expenses
|
1,776
|
|
907
|
Interest accrued on notes payable
|
—
|
|
489
|
Deferred costs
|
(2,217)
|
|
—
|
Contract liabilities
|
2,308
|
|
629
|
Operating lease liabilities
|
(124)
|
|
(108)
|
Other, net
|
(102)
|
|
—
|
Net cash used in operating activities
|
(43,760)
|
|
(8,333)
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Purchase of investments
|
(304,868)
|
|
—
|
Proceeds from maturities of investments
|
78,633
|
|
—
|
Proceeds from sales of investments
|
1,300
|
|
—
|
Equity method investment
|
(4,000)
|
|
—
|
Capital expenditures
|
(2,113)
|
|
(603)
|
Net cash used in investing activities
|
(231,048)
|
|
(603)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Issuance of convertible notes
|
—
|
|
|
1,924
|
|
Issuance of term notes
|
—
|
|
|
3,750
|
Proceeds from PPP loan
|
—
|
|
3,300
|
|
Issuance of common stock
|
—
|
|
5,027
|
|
Exercise of stock options
|
5,058
|
|
7
|
|
Exercise of stock warrants
|
21,580
|
|
—
|
|
Warrant redemption payments
|
(72)
|
|
—
|
Principal portion of finance lease liabilities
|
(154)
|
|
(138)
|
Net cash provided by financing activities
|
$
|
26,412
|
|
$
|
13,870
|
(Continued)
|
|
|
Condensed Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 2021 and 2020 (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
Net change in cash, cash equivalents and restricted cash
|
$
|
(248,396)
|
|
$
|
4,934
|
Cash, cash equivalents and restricted cash, beginning of period
|
293,942
|
|
1,929
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
45,546
|
|
$
|
6,863
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
|
|
|
|
Cash and cash equivalents
|
$
|
44,046
|
|
$
|
5,363
|
Restricted cash
|
1,500
|
|
1,500
|
Total cash, cash equivalents and restricted cash
|
$
|
45,546
|
|
$
|
6,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
Cash paid for interest
|
$
|
—
|
|
$
|
—
|
Cash paid for income taxes
|
$
|
10
|
|
$
|
—
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
Purchases of property, plant and equipment in accounts payable at the end of period
|
$
|
514
|
|
$
|
702
|
Issuance of common stock as contract consideration
|
$
|
5,108
|
|
$
|
—
|
(Concluded)
The accompanying notes are an integral part of these condensed consolidated financial statements.
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Romeo Power, Inc. (f/k/a RMG Acquisition Corp.) was originally incorporated under the name RMG Acquisition Corp. (“RMG”) as a blank check company incorporated in Delaware on October 22, 2018 for the purpose of effecting a merger, capital stock-exchange, asset acquisition, share purchase, reorganization, or similar business combination.
On October 5, 2020, RMG and RMG Merger Sub, Inc. a Delaware corporation and a wholly owned subsidiary of RMG (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Romeo Systems, Inc., a Delaware corporation (“Legacy Romeo”). On December 29, 2020, pursuant to the terms of the Merger Agreement, the business combination with Legacy Romeo was effected through the merger of Merger Sub with and into Legacy Romeo, with Legacy Romeo continuing as the surviving company and as our wholly owned subsidiary (the “Merger” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). Upon the closing of the Business Combination, we changed our name to Romeo Power, Inc.
Romeo Power, Inc. designs, engineers, and manufactures lithium ion cylindrical battery packs for electric vehicles and energy storage solutions, with a focus on battery innovation, functionality, energy density, safety, and performance. We are headquartered in Vernon, California.
Unless the context otherwise requires, “Romeo,” the “Company,” “we,” “us,” or “our” refers to the combined company and its subsidiaries following the Business Combination and “Legacy Romeo” refers to Romeo Systems, Inc.
In 2019, Legacy Romeo and BorgWarner, Inc. (“BorgWarner”) formed BorgWarner Romeo Power LLC (the “Joint Venture” or “JV”) of which we own 40%. The Joint Venture is intended to accelerate our reach into international regions in a capital efficient way. As a result, we manage our operations to focus on both the Joint Venture’s activities and our core operations.
Basis of Presentation—The Business Combination was accounted for as a reverse recapitalization (the “Recapitalization Transaction”) in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. For accounting and financial reporting purposes, Legacy Romeo was considered the acquirer based on facts and circumstances, including the following:
• Legacy Romeo’s former stockholders hold a majority ownership interest in the combined company;
• Legacy Romeo’s senior management team became the senior management of the combined company;
• Legacy Romeo was the larger of the companies based on historical operating activity and employee base; and
• Legacy Romeo’s operations comprise the ongoing operations of the combined company.
Accordingly, all historical financial information presented in these condensed consolidated financial statements represents the accounts of Legacy Romeo and its wholly owned subsidiaries “as if” Legacy Romeo is the predecessor and legal successor. The historical operations of Legacy Romeo are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Legacy Romeo prior to the Business Combination; (ii) the combined results of RMG and Legacy Romeo following the Business Combination on December 29, 2020; and (iii) RMG’s equity structure for all periods presented. No step-up basis of RMG’s assets and liabilities and no intangible assets or goodwill were recorded in connection with the Business Combination transaction consistent with the treatment of the transaction as a reverse recapitalization.
In connection with the Business Combination each share of Legacy Romeo common stock and preferred stock issued and outstanding immediately prior to the Business Combination (with each share of Legacy Romeo preferred stock being treated as if it were converted into Legacy Romeo common stock immediately prior to the Business Combination) converted into the right to receive 0.121730 shares (the “Exchange Ratio”) of common stock, par value $0.0001 (the “Common Stock”). The recapitalization of the number of shares of Common Stock attributable to Legacy Romeo is reflected retroactively to the earliest period presented based upon the Exchange Ratio and is utilized for calculating earnings per share in all prior periods presented.
The accompanying condensed consolidated financial statements include the results of Romeo Power, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated and the effect of variable interest entities have been considered in the consolidation.
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Unaudited Interim Financial Information—The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q, and the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements presented herein have not been audited by an independent registered public accounting firm, but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the period. These results are not necessarily indicative of results for any other interim period or for the full fiscal year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the SEC. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 15, 2021 (the “2020 Form 10-K”).
Use of Estimates—The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. Actual amounts could differ from these estimates. The condensed consolidated financial statements have been prepared under the assumption that Romeo will continue as a going concern.
Reclassification of Presentation in Our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income—Revenues of comparative prior periods in our condensed consolidated statements of operations and comprehensive (loss) income are reclassified to conform with our current revenue presentation. In the condensed consolidated statements of operations, we’ve combined related party revenues with product revenues and service revenues and disclosed the amount of related party revenues in a captioned note.
Reclassification of Presentation in Note 3 of our Condensed Consolidated Financial Statements—Revenues of comparative prior periods presented in Note 3 of our condensed consolidated financial statements are reclassified to conform with our current revenue presentation. Since April 1, 2021, we have presented disaggregated revenue by product and service instead of further disaggregating product by battery packs and modules.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except as described below, no material changes have been made to our significant accounting policies disclosed in Note 2 of the notes to consolidated financial statements in Part II, Item 8 of the 2020 Form 10-K.
Available-for-Sale Debt Investments — We classify our investments in fixed income debt securities as available-for-sale debt investments. Our available-for-sale debt investments primarily consist of U.S. government securities, municipal securities, corporate debt, commercial paper, and U.S. agency mortgage-backed securities. These available-for-sale debt investments are primarily held in the custody of a major financial institution. These investments are reported on the condensed consolidated balance sheets at fair value. Unrealized gains and losses on these investments, to the extent the investments are unhedged, are included as a separate component of accumulated other comprehensive loss, net of tax. A specific identification method is used to determine the cost basis of available-for-sale debt investments and any realized gains or losses when sold. We classify our investments as current based on the nature of the investments and their availability for use in current operations.
Deferred Assets— Deferred assets represent upfront payments of the Company’s common stock issued to a customer and will be amortized as a reduction of revenue as the related products or services are provided to the customer.
Recently Adopted Accounting Pronouncements
In January 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-01, ASC subtopic 825-10, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which revised an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. This accounting guidance also amended certain disclosure requirements associated with the fair value of financial instruments. Under ASU No. 2016-01, entities must measure
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
certain equity investments at fair value and recognize any changes in fair value in net income, unless the investments qualify for a new practicality exception. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We adopted the standard on January 1, 2021, when we began making significant investments in available-for-sale debt securities and formulating a company investment policy to support the use and management of the proceeds from the Business Combination.
In December 2019, the FASB issued ASU No. 2019-12, ASC 740, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The guidance is effective for all public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption is also permitted. We adopted the standard on January 1, 2021 and the adoption of the new guidance does not have a material impact on our financial position, operating results or cash flows.
Other recently issued accounting updates are either not expected to have a material impact or are not relevant to our condensed consolidated financial statements.
3. REVENUES
Contract Liabilities—Contract liabilities in the accompanying condensed consolidated balance sheets relate to payments received in advance of satisfying performance obligations under our contracts and are realized when the associated revenue is recognized under the contracts. During the three and six months ended June 30, 2021, changes in contract liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2021
|
|
Six Months Ended
June 30, 2021
|
Beginning balance
|
$
|
1,672
|
|
$
|
815
|
Revenues recognized
|
(702)
|
|
|
(819)
|
|
Increase due to billings
|
2,153
|
|
3,127
|
|
Ending balance
|
$
|
3,123
|
|
$
|
3,123
|
Contract liabilities are earned as services and prototypes are transferred to the customer. The remaining contract liability balance as of June 30, 2021 is expected to be earned and recognized as revenue within the next twelve months.
As of June 30, 2021, we had executed certain contracts with customers to deliver specific battery packs, modules, and battery management system and software services. These contracts contain minimum quantity purchase requirements that are non-cancellable (other than for a breach by Romeo), and we have enforceable rights to pursue payments due under these contracts under make-whole provisions, or through customary remedies for breach of contract if the minimum quantities are not ordered. The following table presents the non-cancellable minimum purchase commitments under such contracts as of June 30, 2021 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Contractual Minimum Purchase Commitments
|
Purchase contracts with make-whole provisions (1)
|
|
$
|
310,865
|
Purchase contracts with provisions of customary remedies for breach of contract (2)
|
|
243,171
|
|
Total
|
|
$
|
554,036
|
(1) For the $310.9 million of unsatisfied performance obligations related to minimum quantity purchase commitments, if the customers do not follow through on their minimum purchase commitments, we would receive a maximum of $291.4 million under certain make-whole provisions included in these contracts.
(2) For the remaining $243.2 million of unsatisfied performance obligations related to minimum quantity purchase commitments included in these contracts, if the customers do not follow through on their minimum purchase commitments, we would seek damages through customary remedies for breach of contract.
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Revenues Expected
To be Recognized
|
July 1, 2021 through December 31, 2021
|
|
$
|
18,907
|
January 1, 2022 through December 2023
|
|
445,851
|
|
Thereafter
|
|
89,278
|
|
Total
|
|
$
|
554,036
|
This backlog includes the total value of our existing customer contracts and includes products that are within the scope of the license granted to the JV, based on the types of customer vehicles in which the products will be used. To the extent that those product deliveries are fulfilled by the JV, or pursuant to an agreement with the JV, we may not recognize the full amount of such contracted backlog as revenue. The realization and timing of the recognition of our backlog is dependent, among other things, on our ability to obtain and secure a sufficient supply of battery cells from our suppliers as well as our ability to meet the acceptance requirements in contracts, such as design and quality tests.
In addition, these amounts exclude any potential adjustments for variable consideration which could arise from provisions in our contracts where the price for a product or service can change based on future events. Based on practical expedient elections permitted by ASC 606, Revenue from Contracts with Customers, the Company does not disclose the value of unsatisfied performance obligations for variable consideration that is allocated entirely to a wholly unsatisfied performance obligation.
Disaggregation of Revenues—We earn revenue through the sale of products and services. Product and service lines are the disaggregation of revenues primarily used by management, as this disaggregation allows for the evaluation of market trends, and certain product lines and services vary in recurring versus non-recurring nature. We do not have any material sales outside of North America.
The following tables disaggregate revenues by type of revenues and segment for the three and six months ended June 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2021
|
|
North
America
|
|
JV
Support
|
|
Total
|
|
North
America
|
|
JV
Support
|
|
Total
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
$
|
466
|
|
$
|
—
|
|
$
|
466
|
|
$
|
1,078
|
|
$
|
—
|
|
$
|
1,078
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Venture support
|
—
|
|
460
|
|
460
|
|
—
|
|
902
|
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
466
|
|
$
|
460
|
|
$
|
926
|
|
$
|
1,078
|
|
$
|
902
|
|
$
|
1,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2020
|
|
North
America
|
|
JV
Support
|
|
Total
|
|
North
America
|
|
JV
Support
|
|
Total
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
$
|
458
|
|
$
|
—
|
|
$
|
458
|
|
$
|
2,046
|
|
$
|
—
|
|
$
|
2,046
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring engineering and prototype
|
84
|
|
—
|
|
84
|
|
136
|
|
—
|
|
136
|
Joint Venture support
|
—
|
|
587
|
|
587
|
|
—
|
|
1,469
|
|
1,469
|
Total service revenues
|
84
|
|
587
|
|
671
|
|
136
|
|
1,469
|
|
1,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
542
|
|
$
|
587
|
|
$
|
1,129
|
|
$
|
2,182
|
|
$
|
1,469
|
|
$
|
3,651
|
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table disaggregates revenues by when control is transferred for the three and six months ended June 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Point in time
|
$
|
466
|
|
$
|
542
|
|
$
|
1,078
|
|
$
|
2,182
|
Over time
|
460
|
|
587
|
|
902
|
|
1,469
|
Total
|
$
|
926
|
|
$
|
1,129
|
|
$
|
1,980
|
|
$
|
3,651
|
4. INVENTORY
As of June 30, 2021 and December 31, 2020, inventory consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Raw materials
|
|
$
|
6,798
|
|
$
|
4,064
|
Work-in-process
|
|
356
|
|
531
|
Finished goods
|
|
461
|
|
342
|
Total inventories
|
|
$
|
7,615
|
|
$
|
4,937
|
We write down inventory for obsolete inventory items and when the net realizable value of inventory items is less than their carrying value. During the three months ended June 30, 2021 and 2020, we recorded $0.8 million and no write-down of inventory, respectively, in cost of revenues. During the six months ended June 30, 2021 and 2020, we recorded $1.2 million and no write-down of inventory, respectively, in cost of revenues.
5. EQUITY METHOD INVESTMENTS
BorgWarner Romeo Power LLC
Legacy Romeo and BorgWarner formed BorgWarner Romeo Power LLC on June 28, 2019. Legacy Romeo and BorgWarner received a 40% interest and 60% interest in the Joint Venture, respectively. Subsequently, Legacy Romeo and BorgWarner agreed to contribute an additional $10.0 million to the Joint Venture which represented funding for 2021 capital needs. In January 2021, we invested $4.0 million in the Joint Venture, which represented our pro rata share of the agreed upon funding.
Heritage Battery Recycling, LLC
On October 2, 2020, we entered into a Battery Recycling Agreement (the “Battery Recycling Arrangement”) with Heritage Battery Recycling, LLC (“HBR”), an affiliate of Heritage Environmental Services, Inc. (“HES”). Under the Battery Recycling Arrangement, HBR has agreed to design, build and operate a system for redeploying, recycling or disposing of lithium-ion batteries (the “System”) to be located at HES’s facility in Arizona. Immediately following the Business Combination on December 29, 2020, we contributed $35.0 million to HBR, a related party to an investor in Legacy Romeo and an investor of $25.0 million in the private placement of shares of Common Stock (the “PIPE Shares”) that were sold in connection with the Business Combination. While the arrangement is in effect, it establishes a strategic arrangement with HES for the collection of our battery packs for recycling, and it gives our customers priority at the recycling facility. We also have agreed to fund, in principal, up to $10.0 million for a pilot program that, if successful, could lead to the purchase of commercial vehicles containing Romeo batteries by HBR’s affiliate. The terms of the pilot program have not yet been finalized and reflected in an executed agreement.
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of June 30, 2021, HBR had not yet begun construction of the battery recycling facility or begun operation of the System. Therefore, during the three and six months ended June 30, 2021 there are no profits or losses from our equity method investment to be recognized in our condensed consolidated statement of operations and comprehensive income (loss).
6. PUBLIC AND PRIVATE PLACEMENT WARRANTS
In February 2019, in connection with the RMG initial public offering (the “RMG IPO”), RMG issued 7,666,648 warrants (the “Public Warrants”) to purchase shares of Common Stock at $11.50 per share. Simultaneously with the consummation of the RMG IPO, RMG issued 4,600,000 warrants (the “Private Placement Warrants” and, together with the Public Warrants, the “Public and Private Placement Warrants”) to purchase shares of Common Stock at $11.50 per share, to RMG Sponsor, LLC (the “Sponsor”), certain funds and accounts managed by subsidiaries of BlackRock, Inc., and certain funds and accounts managed by Alta Fundamental Advisers LLC (together, the “Anchor Investors”).
On February 16, 2021, we announced the redemption of all of the outstanding Public Warrants to purchase shares of our Common Stock, that were issued under the Warrant Agreement. All Public Warrants could be exercised until April 5, 2021 to purchase shares of our Common Stock, at the exercise price of $11.50 per share, and any Public Warrants that remained unexercised were voided and no longer exercisable. On April 5, 2021, 7,223,683 Public Warrants were redeemed at the redemption price of $0.01 per Public Warrant. The Company paid Public Warrant holders a total of $72,237 in connection with the redemption.
The Public and Private Placement warrants are recorded as liabilities in our condensed consolidated balance sheets. As of June 30, 2021, we had 3,178,202 Private Warrants and no Public Warrants outstanding. As of December 31, 2020, we had 4,600,000 Private Warrants and 7,666,648 Public Warrants outstanding.
7. STOCK-BASED COMPENSATION
We estimate the grant date fair value of stock options containing only a service condition using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the fair value of our Common Stock, the risk-free interest rate, expected term, expected dividend yield and expected volatility. Prior to the Business Combination, when there was no public market for Legacy Romeo’s common stock, the fair value of our common stock was estimated with the assistance of an independent third-party valuation firm using a combination of a market and income approach. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected option term of each stock option. We use the simplified method to calculate the expected term. The dividend yield assumption is based on the dividends expected to be paid over the expected life of the stock option. Our volatility is derived from several publicly traded peer companies, due to our limited history as a publicly traded company. The grant date fair value of awards with market conditions is estimated using a Monte Carlo simulation or other appropriate fair value method with the assistance of an independent third-party valuation firm. The fair value of our restricted stock units (“RSUs”) and performance-related restricted stock units (“PSUs”) is based on the closing price of our common stock on the date of grant.
2016 Stock Plan
Following the Business Combination, the outstanding stock options issued under the Romeo Systems, Inc. 2016 Stock Plan may be exercised (subject to their original vesting, exercise and other terms and conditions) to purchase a number of shares of Common Stock equal to the number of shares of Legacy Romeo common stock subject to such Legacy Romeo options multiplied by the Exchange Ratio (rounded down to the nearest whole share) at an exercise price per share divided by the Exchange Ratio (rounded up to the nearest whole cent). The information presented herein is as if the exchange of stock options and Common Stock occurred as of the earliest period presented.
Time-based awards
During the six months ended June 30, 2021 we did not grant any stock options to employees. During the three months ended June 30, 2021, our employees exercised stock options totaling 1,811,557 shares for total proceeds of $7.5 million. During the six months ended June 30, 2021, our employees exercised stock options totaling 2,648,306 shares for total proceeds of $12.2 million, $7.1 million of which was received in July 2021.
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The fair value of the time-based stock options granted during the six months ended June 30, 2020 was determined using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Assumptions:
|
|
|
|
Six Months Ended
June 30, 2020
|
Risk-free interest rate
|
|
|
|
0.92%
|
Expected term (in years)
|
|
|
|
6.5
|
Expected volatility
|
|
|
|
60%
|
Dividend yield
|
|
|
|
0%
|
Grant date fair value per share
|
|
|
|
$1.48
|
Performance and market-based option award
In August 2020, we awarded 4,633,978 stock options to our then Chairman and CEO at an exercise price of $6.69 per share. All of the shares covered by such award are subject to time-based, performance and market condition vesting requirements. As of December 29, 2020, the date of the Business Combination, the performance condition was satisfied, and we began recognizing stock-based compensation expense based upon the grant date fair value of the award. We recognized the stock-based compensation expense over the requisite service period, which was from December 29, 2020 through June 27, 2021. We estimated the grant date fair value of the award to be $9.6 million, which was determined using a Monte Carlo simulation with the assistance of an independent third-party valuation firm.
According to the table of exercisable shares below and the average of the closing price per share of our Common Stock on each of the five trading days immediately following the vesting date of June 27, 2021, 926,795 shares of the performance and market-based option became exercisable when the six-month lockup period assigned to Legacy Romeo stockholders in connection with the Business Combination expired. On July 6, 2021, all 926,795 shares of such option were exercised.
|
|
|
|
|
|
|
|
|
Average Closing Share Price:
|
|
Cumulative Number Of Shares
|
$6.6869 - $8.9452
|
|
926,795
|
$8.9453 - $11.9272
|
|
1,853,591
|
$11.9273 - $14.9092
|
|
3,243,781
|
$14.9093
|
|
4,633,978
|
2020 Stock Plan
On December 29, 2020, our stockholders approved the Romeo Power, Inc. 2020 Long-Term Incentive Plan (the “2020 Plan”). The purpose of the 2020 Plan is to attract, retain, incentivize and reward top talent through stock ownership, to improve operating and financial performance and strengthen the mutuality of interest between eligible service providers and stockholders. As of June 30, 2021, we have granted RSUs and PSUs under the 2020 Plan.
RSUs and PSUs
On June 11, 2021, we granted 1,411,961 RSUs to employees, 133,492 RSUs to our directors, and 1,354,313 PSUs to certain executives.
The RSUs granted to our employees are eligible to vest over three years from the commencement date, subject to continued employment on each vesting date. One third of these shares vest on the one-year anniversary of the vesting commencement date the remaining shares vest equally over eight quarters thereafter. The RSUs granted to our directors vested in full on July 1, 2021.
The PSUs vest after three years from the commencement date based on the achievement of certain predetermined performance and market goals and are payable in shares of our Common Stock. The market based goal will be measured by reference to the highest 100-consecutive-trading-day average closing price for our common stock through December 31, 2023. The performance based goal will be measured by the achievement of certain backlog targets and percentage reductions in bill-of-material costs per Kilowatt-Hour by December 31, 2021. The actual number of shares to be issued for the PSUs will be the higher of the market based vesting percentage or the performance based vesting percentage, subject to a market-based
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
limitation, and can range from 0% to 200% of the target number of shares set at the time of grant. Stock-based compensation expense for the PSUs is recognized on a straight-line basis over the service period based upon the value determined using the Monte Carlo valuation method for the market goal plus an incremental value, if any, determined by expected achievement of the performance-based goals. The Monte Carlo valuation method incorporates stock price correlation and other variables over the time horizons matching the performance periods. Management will review and assess the achievement of the performance-based goals quarterly through the performance assessment period ending December 31, 2021.
The grant date fair value of the PSUs granted on June 11, 2021, derived from the Monte Carlo simulation, was based, in part, on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Assumptions:
|
|
|
|
|
Grant date stock price
|
|
|
|
$9.23
|
Risk-free interest rate
|
|
|
|
0.24%
|
Simulation term (in years)
|
|
|
|
2.6
|
Expected volatility
|
|
|
|
64%
|
Dividend yield
|
|
|
|
0%
|
Grant date fair value per share
|
|
|
|
$7.93
|
We recorded $1.6 million and $0.2 million of stock-based compensation expense related to RSUs and PSUs, respectively, during the three and six months ended June 30, 2021. At June 30, 2021, the unrecognized stock-based compensation related to RSUs and PSUs was $12.6 million and $10.5 million, respectively, which is expected to be recognized over a weighted-average period of 1.26 years and 2.50 years, respectively.
RSU and PSU activity during the six months ended June 30, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Fair Value
|
|
Outstanding at December 31, 2020
|
—
|
|
$
|
—
|
|
|
|
|
Granted
|
2,899,766
|
|
|
$
|
8.62
|
|
|
|
|
|
|
|
|
|
Forfeited
|
(9,650)
|
|
|
$
|
9.23
|
|
|
|
Outstanding at June 30, 2021
|
2,890,116
|
|
|
$
|
8.62
|
|
|
|
|
The fair value of all RSUs and PSUs granted during the six months ended June 30, 2021 was $25.0 million. During the six months ended June 30, 2021, no shares were vested.
Stock-based compensation expense
During the three months ended June 30, 2021 and 2020, we recognized a total of $8.2 million and $0.4 million, respectively, of stock-based compensation expense related to the vesting of stock options, RSUs and PSUs. During the six months ended June 30, 2021 and 2020, we recognized a total of $14.7 million and $0.7 million, respectively, of stock-based compensation expense related to the vesting of stock options, RSUs and PSUs.
The following table summarizes our stock-based compensation expense by line item in the condensed consolidated statements of operations and comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Cost of revenues
|
$
|
41
|
|
|
$
|
107
|
|
$
|
162
|
|
|
$
|
140
|
Research and development
|
506
|
|
|
—
|
|
567
|
|
|
—
|
Selling, general, and administrative
|
7,642
|
|
268
|
|
14,013
|
|
512
|
Total
|
$
|
8,189
|
|
$
|
375
|
|
$
|
14,742
|
|
$
|
652
|
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. INCOME TAXES
Our income tax provision consists of federal and state income taxes. The tax provision for the three and six months ended June 30, 2021 and 2020 was based on the estimated effective tax rates applicable for the three and six months ended June 30, 2021 and 2020. The Company’s overall effective tax rate of zero percent is different than the federal statutory tax rate because the Company has established a full valuation allowance against its net deferred income tax assets. As of June 30, 2021, the Company continues to record a full valuation allowance against the deferred tax asset balance as realization was uncertain.
9. INVESTMENTS
Available-for-sale debt investments
The following table summarizes our available-for-sale debt investment holdings at June 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized and Credit
Losses
|
|
Fair Value
|
U.S. government securities
|
$
|
44,013
|
|
$
|
4
|
|
$
|
(11)
|
|
$
|
44,006
|
Municipal securities
|
57,162
|
|
69
|
|
(61)
|
|
57,170
|
Corporate debt securities
|
71,918
|
|
17
|
|
(141)
|
|
71,794
|
Asset-backed securities
|
13,437
|
|
2
|
|
(8)
|
|
13,431
|
U.S. agency mortgage-backed securities
|
11,042
|
|
—
|
|
(49)
|
|
10,993
|
Commercial paper
|
21,219
|
|
24
|
|
—
|
|
21,243
|
Certificates of deposit
|
5,000
|
|
—
|
|
(1)
|
|
4,999
|
Total (1)
|
$
|
223,791
|
|
$
|
116
|
|
$
|
(271)
|
|
$
|
223,636
|
(1) There were no unsettled sales of available-for-sale debt investments at June 30, 2021.
The following table presents the gross realized gains and gross realized losses related to available-for-sale debt investments for the three and six months ended June 30, 2021(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2021
|
|
Six Months Ended
June 30, 2021
|
Gross realized gains
|
$
|
3
|
|
|
$
|
37
|
|
Gross realized losses
|
(118)
|
|
|
(190)
|
|
Gross realized loss, net
|
$
|
(115)
|
|
|
$
|
(153)
|
|
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following tables present the breakdown of the available-for-sale debt investments with gross unrealized losses and the duration that those losses had been unrealized at June 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses
Less than 12 Months
|
|
Unrealized Losses
12 Months or Greater
|
|
Total
|
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
U.S. government securities
|
|
$
|
28,009
|
|
|
$
|
(11)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,009
|
|
|
$
|
(11)
|
Municipal securities
|
|
35,784
|
|
(61)
|
|
—
|
|
—
|
|
35,784
|
|
|
(61)
|
Corporate debt securities
|
|
51,887
|
|
(141)
|
|
—
|
|
—
|
|
51,887
|
|
|
(141)
|
Asset-backed securities
|
|
5,381
|
|
(8)
|
|
—
|
|
—
|
|
5,381
|
|
|
(8)
|
U.S. agency mortgage-backed securities
|
|
10,993
|
|
(49)
|
|
—
|
|
—
|
|
10,993
|
|
|
(49)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
4,999
|
|
(1)
|
|
—
|
|
—
|
|
4,999
|
|
|
(1)
|
Total
|
|
$
|
137,053
|
|
$
|
(271)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
137,053
|
|
$
|
(271)
|
The following table summarizes the maturities of our available-for-sale debt investments at June 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Fair Value
|
Less than 1 year
|
$
|
101,501
|
|
|
$
|
101,501
|
|
1 year through 5 years
|
106,314
|
|
|
106,235
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities with no single maturity
|
15,976
|
|
|
15,900
|
|
Total
|
$
|
223,791
|
|
|
$
|
223,636
|
|
Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.
10. FAIR VALUE
Fair Value of Financial Instruments — The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and establishes the disclosure requirements regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2 Inputs—Inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 Inputs—Unobservable inputs reflecting our assessment of assumptions that market participants would use in pricing the asset or liability. We develop these inputs based on the best information available.
Our available-for-sale debt investments are measured at fair value on a recurring basis, consisting of investment grade high quality fixed income assets, which are priced using quoted market prices for similar instruments or unbinding market prices that are corroborated by observable market data.
The Public and Private Placement Warrants are measured at fair value on a recurring basis. We will continue to adjust these liabilities for changes in the fair value of the Public and Private Placement Warrants until the warrants are exercised, redeemed
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
or cancelled. Prior to the redemption of the Public Warrants on April 5, 2021, the Public Warrants were traded on the NYSE and were recorded at fair value using the closing stock price as of the measurement date, which represents a Level 1 fair value measurement.
The fair value of the Private Placement Warrants is established using both Level 1 and Level 2 inputs and determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the fair value of our Common Stock, the risk-free interest rate, expected term, expected dividend yield and expected volatility. The fair value of our Common Stock is considered a Level 1 input as our Common Stock is freely traded on the NYSE. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected term of the Private Placement Warrants, which is 4.5 years. The dividend yield assumption is based on the dividends expected to be paid over the expected life of the warrant. Our volatility is derived from several publicly traded peer companies.
As of June 30, 2021 and December 31, 2020, assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
8,001
|
|
$
|
8,001
|
|
$
|
—
|
|
$
|
—
|
Corporate debt securities
|
|
3,504
|
|
—
|
|
3,504
|
|
—
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
15,998
|
|
—
|
|
15,998
|
|
—
|
U.S. government securities
|
|
8,000
|
|
—
|
|
8,000
|
|
—
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
35,503
|
|
8,001
|
|
27,502
|
|
—
|
Available-for-sale debt investments:
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
44,006
|
|
—
|
|
44,006
|
|
—
|
Municipal securities
|
|
57,170
|
|
—
|
|
57,170
|
|
—
|
Corporate debt securities
|
|
71,794
|
|
—
|
|
71,794
|
|
—
|
Asset-backed securities
|
|
13,431
|
|
|
—
|
|
|
13,431
|
|
|
—
|
|
U.S. agency mortgage-backed securities
|
|
10,993
|
|
—
|
|
10,993
|
|
—
|
Commercial paper
|
|
21,243
|
|
—
|
|
21,243
|
|
—
|
Certificates of deposit
|
|
4,999
|
|
—
|
|
4,999
|
|
—
|
Subtotal
|
|
223,636
|
|
—
|
|
223,636
|
|
—
|
Total
|
|
$
|
259,139
|
|
$
|
8,001
|
|
$
|
251,138
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Placement Warrants
|
|
9,852
|
|
—
|
|
9,852
|
|
—
|
Total
|
|
$
|
9,852
|
|
$
|
—
|
|
$
|
9,852
|
|
$
|
—
|
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills
|
|
$
|
16,000
|
|
$
|
16,000
|
|
$
|
—
|
|
$
|
—
|
Total
|
|
$
|
16,000
|
|
$
|
16,000
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Public Warrants
|
|
$
|
71,453
|
|
$
|
71,453
|
|
$
|
—
|
|
$
|
—
|
Private Placement Warrants
|
|
67,013
|
|
—
|
|
67,013
|
|
—
|
Total
|
|
$
|
138,466
|
|
$
|
71,453
|
|
$
|
67,013
|
|
$
|
—
|
The key assumptions used to determine the fair value of the Private Placement Warrants as of June 30, 2021 and December 31, 2020 using the Black-Scholes model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Assumptions
|
|
June 30, 2021
|
|
December 31, 2020
|
Risk-free interest rate
|
|
0.77%
|
|
0.17%
|
Expected term (in years)
|
|
4.5
|
|
5
|
Expected volatility
|
|
58%
|
|
57%
|
Dividend yield
|
|
—
|
|
—
|
Fair value of common stock
|
|
$8.14
|
|
$22.49
|
11. ACCRUED EXPENSES
As of June 30, 2021 and December 31, 2020, accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Accrued professional service fees
|
|
$
|
3,375
|
|
$
|
1,130
|
Accrued payroll expenses
|
|
412
|
|
617
|
Accrued warranty expenses
|
|
222
|
|
103
|
Other accrued expenses
|
|
611
|
|
994
|
Total accrued expenses
|
|
$
|
4,620
|
|
$
|
2,844
|
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. NET (LOSS) INCOME PER SHARE
The basic and diluted net (loss) income per share is computed by dividing our net loss or net income by the weighted average shares outstanding during the period. The calculation of basic and diluted net (loss) income per share for the three and six months ended June 30, 2021 and 2020 is presented below (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net (loss) income
|
$
|
(28,674)
|
|
|
$
|
(7,025)
|
|
|
$
|
61,338
|
|
|
$
|
(13,794)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
131,059,149
|
|
|
77,396,263
|
|
|
129,930,204
|
|
|
76,021,298
|
|
Dilutive effect of potentially issuable shares
|
—
|
|
—
|
|
5,091,092
|
|
—
|
Weighted average common shares outstanding – diluted
|
131,059,149
|
|
|
77,396,263
|
|
|
135,021,296
|
|
|
76,021,298
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share
|
$
|
(0.22)
|
|
|
$
|
(0.09)
|
|
|
$
|
0.47
|
|
|
$
|
(0.18)
|
|
Diluted net (loss) income per share
|
$
|
(0.22)
|
|
|
$
|
(0.09)
|
|
|
$
|
0.45
|
|
|
$
|
(0.18)
|
|
Potentially dilutive shares that were considered in the determination of diluted net (loss) income per share include stock options and warrants to purchase our Common Stock as well as RSUs and PSUs. Antidilutive shares excluded from the calculation of diluted net (loss) income per share were 12,888,560 and 22,173,533, respectively, for the three months ended June 30, 2021 and 2020, and 7,974,160 and 22,104,262, respectively, for the six months ended June 30, 2021 and 2020. As the inclusion of common stock share equivalents in the calculation of diluted loss per share would be anti-dilutive for the three months ended June 30, 2021 and the three and six months ended June 30, 2020, diluted net loss per share was the same as basic net loss per share.
13. SEGMENTS
We have two operating segments, which are also reportable segments. Our reportable segments are determined and presented based on how information is used by our Chief Operating Decision Maker (“CODM”), which is collectively a senior leadership team consisting of two individuals, to measure performance and allocate resources. These reportable segments are Romeo Power North America and Joint Venture Support. The activities of our Romeo Power North America reportable segment include the research, design, development, and manufacture of electrical power systems for commercial vehicles (Class 6-8: trucks and buses) in the North American market. Our Joint Venture Support reportable segment provides design, research and development, and other engineering related services exclusively to the Joint Venture.
The CODM evaluates and monitors segment performance primarily based upon segment sales and gross profit. Asset information has not been separately disclosed for the segments, as this information is not regularly reported to CODM for purposes of the allocation of resources to our segments or assessing segment performance.
ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Net revenues and gross profit (loss) from each of our reportable segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net revenues:
|
|
|
|
|
|
|
|
Romeo Power North America
|
$
|
466
|
|
$
|
542
|
|
$
|
1,078
|
|
$
|
2,182
|
Joint Venture Support
|
460
|
|
587
|
|
902
|
|
1,469
|
Total net revenues
|
$
|
926
|
|
$
|
1,129
|
|
$
|
1,980
|
|
$
|
3,651
|
Gross (loss) profit:
|
|
|
|
|
|
|
|
Romeo Power North America
|
$
|
(5,076)
|
|
$
|
(1,386)
|
|
$
|
(8,902)
|
|
$
|
(2,628)
|
Joint Venture Support
|
57
|
|
92
|
|
110
|
|
224
|
Total gross loss
|
$
|
(5,019)
|
|
$
|
(1,294)
|
|
$
|
(8,792)
|
|
$
|
(2,404)
|
All of our revenues (based on location of customer) and long-lived assets were within North America for the three and six months ended June 30, 2021 and 2020.
14. TRANSACTIONS WITH RELATED PARTIES
In the ordinary course of business, the Company enters into transactions with related parties to sell products and services. The following table presents the net revenues and cost of revenues associated with our related parties, which are included in our condensed consolidated statement of operations and comprehensive (loss) income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Related party revenues - product revenues
|
$
|
113
|
|
$
|
—
|
|
$
|
384
|
|
$
|
—
|
Related party revenues - service revenues
|
460
|
|
587
|
|
902
|
|
1,469
|
Total related party revenues
|
573
|
|
587
|
|
1,286
|
|
1,469
|
|
|
|
|
|
|
|
|
Costs associated with related party revenues - product revenues
|
71
|
|
—
|
|
271
|
|
|
Costs associated with related party revenues - service revenues
|
403
|
|
495
|
|
792
|
|
1,245
|
Total costs associated with related party revenues
|
474
|
|
495
|
|
1,063
|
|
1,245
|
|
|
|
|
|
|
|
|
Gross profit associated with related party revenues
|
$
|
99
|
|
$
|
92
|
|
$
|
223
|
|
$
|
224
|
Transactions with BorgWarner and the Joint Venture — In connection with Legacy Romeo’s investment in the Joint Venture formed on June 28, 2019 (Note 5), Legacy Romeo entered into a services agreement to provide various professional services to the Joint Venture. We have also sold certain products directly to a subsidiary of BorgWarner. Revenues earned for services rendered to the Joint Venture and products sold to BorgWarner were presented in the table above. Accounts receivable from BorgWarner was $0.1 million and zero at June 30, 2021 and December 31, 2020, respectively.
Transactions with Heritage Environmental Services and its related parties — On October 2, 2020, we entered into the Battery Recycling Arrangement with HBR, an affiliate of HES, a related party to an investor in Legacy Romeo and an investor of $25.0 million in the PIPE Shares. Immediately following the Business Combination on December 29, 2020, we contributed $35.0 million to HBR. See Note 5, Equity Method Investments for additional information relating to our contribution to HBR.
In connection with the Battery Recycling Arrangement, we also agreed to fund up to $10.0 million to purchase ten battery electric vehicle (“BEV”) trucks and the charging infrastructure for a one-year pilot program to determine the feasibility of transitioning HES’s or its affiliates’ fleet of trucks from diesel powered vehicles to BEVs. If such pilot program is successful, the parties would enter into an agreement for the procurement through us of at least 500 BEVs on terms acceptable to HBR, HES and us. The participants in the pilot program have been selected, and the parties are beginning to work towards an agreement to fund and support the pilot program.
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Transactions with Michael Patterson and related parties — On April 15, 2021, Michael Patterson ended his employment with Romeo, resigned from all positions he used to hold in the Company, the Board of Directors and the BorgWarner JV board of directors, and we entered into a consulting agreement with him for services to be provided through the end of 2021. On May 5, 2021, we signed a non-binding Memorandum of Understanding with Crane Carrier Company (“CCC”) to explore the terms of a potential commercial relationship in which we would supply batteries to CCC for its electric refuse trucks. CCC was recently acquired by Battle Motors, a company founded by Michael Patterson, and Mr. Patterson is the Chief Executive Officer of both CCC and Battle Motors.
15. COMMITMENTS AND CONTINGENCIES
Litigation — We are subject to certain claims and legal matters that arise in the normal course of business. Management does not expect any such claims and legal actions to have a material adverse effect on our financial position, results of operations or liquidity, except the following:
A police officer was injured as a result of an automobile accident resulting from an allegedly intoxicated Legacy Romeo employee driving following his departure from a 2017 company holiday party that occurred after hours and not on our premises. We terminated the employee’s employment shortly after the incident occurred. This matter resulted in a personal injury lawsuit (Chelico et al. v. Romeo Systems, Inc., et al., Case # 18STCV04589, Los Angeles County), for which we are a named defendant. In July 2020, we settled this matter in principle and agreed to pay a settlement of $6.0 million. Correspondence that we believe constituted a legally enforceable agreement was exchanged on July 22, 2020. Our business and umbrella insurance carriers agreed to cover the cost of damages owed. As a result, we accrued $6.0 million as a legal settlement payable with a corresponding insurance receivable for $6.0 million as of June 30, 2021 and December 31, 2020. Because the plaintiff had not proceeded to finalize the settlement transaction due to a dispute with the City of Los Angeles related to the allocation of the global settlement payment between the plaintiff and the LAPD (unrelated to Romeo), we filed a motion for summary judgment in Case # 18STCV04589 and filed a claim for breach of contract against the plaintiff in Romeo Systems et al. v. Chelico, Case # 21STCV20701. The summary judgment motion was argued on July 1, 2021, and on July 27, 2021, the court ruled that issues of fact precluded summary judgment. On the breach of contract claim, the police officer’s response to the complaint is due August 12, 2021. A mediation on the allocation issue is scheduled to occur on September 17, 2021.
In October 2020, a wage-and-hour class action was filed in Los Angeles Superior Court on behalf of all current and former non-exempt employees in California from October 2016 to present. The allegations include meal and rest period violations and various related claims. The case is currently stayed pending mediation, which was continued to October 2021. We intend to defend ourselves against these claims and the possible range of loss, if any, cannot currently be estimated.
On February 26, 2021, plaintiff Lady Benjamin PD Cannon f/k/a Ben Cannon filed a complaint (the “Cannon Complaint”) against Romeo and Michael Patterson (“Patterson”) in the Court of Chancery for the State of Delaware. The Cannon Complaint includes claims for declaratory relief (against Romeo and Patterson), non-compliance with Article 9 of the Delaware UCC (against Patterson), conversion (against Romeo and Patterson), and breach of contract (against Romeo). Generally, plaintiff alleges that the transfer to Patterson of a warrant for 1,000,000 shares of Romeo’s Common Stock, which plaintiff pledged as security for a loan, is invalid, that Patterson improperly accepted that warrant in satisfaction of the loan, and that she, not Patterson, holds the right to exercise that warrant and to purchase the equivalent of 1% of Romeo’s Common Stock. The relief sought by plaintiff includes declaratory relief, return of the warrant, specific performance on the warrant, money damages, cost of suit, and attorney fees. On May 4, 2021, Romeo filed a motion to dismiss all claims against it under Delaware Chancery Rule 12(b)(6); on May 17, 2021, plaintiff filed a motion for partial summary judgment; and on June 16, 2021, Romeo and Patterson filed a joint Rule 56(f) motion for discovery. Those motions are pending, and we intend to defend ourselves vigorously against plaintiff’s claims. The outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties. Given the early stage of the litigation and based upon information presently known to management, we are not currently able to estimate the outcome of this proceeding or a possible range of loss, if any.
On April 16, 2021, plaintiff Travis Nichols filed a class action complaint (the “Nichols Complaint”) against Romeo, in the U.S. District Court for the Southern District of New York. The Nichols Complaint alleges that defendants made false and misleading statements regarding the supply of battery cells, which are components of Romeo’s products, and the Company’s ability to meet customer demand and achieve its revenue forecast for 2021. On May 6, 2021, plaintiff Victor J. Toner filed a second class action complaint (the “Toner Complaint”) against Romeo, in the U.S. District Court for the Southern District of New York. The allegations in the Toner Complaint are substantially similar to the allegations in the Nichols Complaint. The
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relief sought by both plaintiffs includes money damages, reimbursement of expenses, and equitable relief. On July 15, 2021, the Court consolidated the two pending cases and appointed a lead plaintiff. The lead plaintiff must file a consolidated amended complaint on or before September 15, 2021. We have not yet responded to the lawsuit, but we intend to defend ourselves vigorously against these claims. This litigation is at preliminary stages and the outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties. Based upon information presently known to management, we are not currently able to estimate the outcome of this proceeding or a possible range of loss, if any.
On May 19, 2021, plaintiff Tiffany Westbrooks filed a complaint (the “Westbrooks Complaint”) against Romeo, in the Superior Court of the State of California for the County of Los Angeles. The Westbrooks Complaint alleges claims for discrimination based on race, color, national origin, and/or ancestry; harassment based on race, color, national origin, and/or ancestry; disability discrimination; failure to prevent discrimination and/or retaliation; retaliation; violation of California Government Code section 12940(h); violation of the California Family Rights Act; retaliation for taking leave under the California Family Rights Act; wrongful termination in violation of public policy; intentional infliction of emotional distress; failure to provide employment records upon request; and failure to produce personnel records upon request. The relief sought by plaintiff includes past and future lost income and benefits, emotional distress damages, pre-judgment interest, cost of suit and attorneys’ fees, punitive damages, and statutory penalties. We intend to defend ourselves against these claims and the possible range of loss, if any, cannot currently be estimated.
16. CONCENTRATION OF RISK
Customer Concentration and Accounts Receivable
We had certain customers whose revenue individually represented 10% or more of our total revenue, or whose accounts receivable balances individually represented 10% or more of our total accounts receivable, as follows:
For the three months ended June 30, 2021, total revenue recognized included 17% from one major customer, 12% from a second major customer, 11% from a third major customer and 50% from the Joint Venture engineering services, together representing 90% of our total revenue. For the three months ended June 30, 2020, total revenue recognized included 39% from one major customer, and 52% from the Joint Venture engineering services, together representing 91% of our total revenue.
For the six months ended June 30, 2021, total revenue recognized included 19% from one major customer, 12% from a second major customer, 12% from a third major customer and 46% from the Joint Venture engineering services, together representing 89% of our total revenue. For the six months ended June 30, 2020, total revenue recognized included 55% from one major customer, and 42% from the Joint Venture engineering services, together representing 97% of our total revenue.
As of June 30, 2021, our total reported accounts receivable balance included 62% from one major customer, 11% from a second major customer and 5% from the Joint Venture engineering services account, together representing 78% of our total accounts receivable. As of December 31, 2020, our total reported accounts receivable balance included 13% from one major customer, 13% from another major customer and 44% from the Joint Venture engineering services account, together representing 70% of our total accounts receivable.
The Joint Venture engineering services account is included in the Joint Venture Support operating segment. The remaining major customers referenced are customers of the Romeo Power North America operating segment.
Supplier Concentration
We rely on third-party suppliers for the provision and development of many of the key components and materials used in our battery modules and packs, such as battery cells, electrical components, electromechanical components, mechanical components and enclosure materials. Some of the components used in our battery modules and packs are purchased by us from single sources. While we believe that we may be able to establish alternative supply relationships and can obtain or engineer replacement components for our single-sourced components, we may be unable to do so in the short term (or at all) at prices or quality levels that are favorable to us, which could have a material adverse effect on our business, financial condition, operating results, and future prospects. Furthermore, in certain cases, the establishment of an alternative supply relationship could require us to visit a new supplier’s facilities in order to qualify the supplier and perform supplier quality audits, and, over the past twelve months, our ability to travel and qualify new suppliers has been directly impacted by COVID-19. During the three and
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six months ended June 30, 2021, respectively, three third-party suppliers of key single-sourced components and materials used in our battery modules and packs represented 26% and 24% of our total purchases during the period.
We are dependent on the continued supply of battery cells for our products, and we will require substantially more cells to grow our business according to our plans. Currently, the overall supply of battery cells that we utilize in our manufacturing process has been constrained by high market demand. We currently purchase our cylindrical battery cells from two Tier 1 cylindrical battery cell suppliers, whose cells are qualified for use in electric vehicle (“EV”) applications. To date, we have only fully qualified a very limited number of additional suppliers and have limited flexibility in changing battery cell suppliers, though we are actively engaged in activities to qualify additional battery cell suppliers for use in EV applications. During the three and six months ended June 30, 2021, respectively, 46% and 39% of our total purchases for components of our products were for battery cells, of which 99% and 98% of the battery cell purchases were concentrated with two Tier 1 suppliers. We may purchase our battery cells either directly from the cell supplier or through a distributor.
17. SUBSEQUENT EVENTS
Effective August 10, 2021, we entered into a long-term supply agreement for the purchase of lithium-ion battery cells with a Tier 1 battery cell and materials manufacturer (“Supplier”). Under the long-term supply agreement, the Supplier is committed to supplying cells to us, at escalating annual minimums, through June 30, 2028. Supplier's minimum total supply commitment to us, and our minimum purchase obligation, is for 445.5 million cells, and Supplier has agreed to use its best effort to allocate additional cells to us through 2023.
To facilitate Supplier’s supply of cells, we agreed to pay Supplier by December 31, 2021 a deposit of $1.5 million, which will be applied as an advance for cells purchased in 2021 and 2022, and a prepayment of approximately $64.7 million by September 10, 2021, which will be applied as an advance for the cells to be purchased from July 1, 2023 through June 30, 2028. Pursuant to the terms of the long-term supply agreement, the unit price of the cells will be adjusted semiannually based on a raw materials index as prices change.
If the Company breaches its minimum volume commitment during any applicable year or portion thereof, Supplier is entitled to retain, as liquidated damages, the remaining balance of the Deposit or Prepayment (i.e., amounts that have not yet been applied as a credit against purchased cells), as applicable. If Supplier materially breaches its minimum volume commitment during any applicable year or portion thereof, or in the event of a force majeure, Supplier will be required to return the remaining balance of the Deposit or Prepayment (i.e., amounts that have not yet been applied as a credit against purchased cells), as applicable.