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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
    
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-38795
ROMEO POWER, INC.
(Exact name of registrant as specified in its charter)
Delaware83-2289787
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4380 Ayers Avenue
Vernon, CA 90058
(833) 467-2237
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.0001 per shareRMONew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒ No  ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒   No  ☐ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ☐     No  
As of May 14, 2021, 131,197,350 shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.


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                         Condensed Consolidated Balance Sheets (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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Part I - Financial Statements
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2021 AND DECEMBER 31, 2020 (UNAUDITED)
(In thousands, except share and per share data)
March 31, 2021December 31, 2020
ASSETS
Current assets
Cash and cash equivalents$41,278 $292,442
Investments246,215 
Accounts receivable, net of allowance for expected credit loss of $213 and $238 at March 31, 2021 and December 31, 2020, respectively
1,444841 
Inventories, net5,6894,937 
Insurance receivable6,0006,000 
Deferred costs998 
Prepaid expenses and other current assets9,3061,269 
Total current assets310,930305,489
Restricted cash1,5001,500 
Property, plant and equipment, net6,3215,484 
Equity method investments38,35735,000 
Operating lease right-of-use assets5,4115,469 
Other noncurrent assets2,8933,100 
TOTAL ASSETS$365,412$356,042
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$5,033$2,900
Accrued expenses3,0942,844
Contract liabilities1,672815
Current maturities of long-term debt2,7832,260
Operating lease liabilities, current855853
Legal settlement payable6,0006,000
Other current liabilities248384
Total current liabilities19,68516,056
Commitments and contingencies (Note 14)
Long-term debt, net of current portion5591,082
Public and private placement warrants11,921138,466
Operating lease liabilities, net of current portion4,6614,723
Other noncurrent liabilities17
Total liabilities36,826160,344
Stockholders’ equity
Preferred stock ($0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding at March 31, 2021 and December 31, 2020)
Common stock ($0.0001 par value, 250,000,000 shares authorized, 130,529,147 and 126,911,861 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively)
1312
Additional paid-in capital416,308373,129
Accumulated other comprehensive loss(304) 
Accumulated deficit(87,431)(177,443)
Total stockholders’ equity328,586195,698 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$365,412$356,042
See accompanying notes
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (UNAUDITED)
(In thousands, except share and per share data)
Three Months Ended March 31,
20212020
REVENUES:
Product revenues$341$1,588
Service revenues52
Related party revenues713882
Total revenues1,0542,522
COST OF REVENUES:
Product cost4,2382,729
Service cost153
Related party cost589750
Total cost of revenues4,8273,632
GROSS LOSS(3,773)(1,110)
OPERATING EXPENSES:
Research and development3,7711,802
Selling, general and administrative17,9992,907
Total operating expenses21,7704,709
OPERATING LOSS(25,543)(5,819)
Interest expense(7)(254)
Interest income90
Change in fair value of public and private placement warrants116,125 
INCOME (LOSS) BEFORE INCOME TAXES AND LOSS IN EQUITY METHOD INVESTMENTS90,665 (6,073)
Loss in equity method investments(643)(696)
Provision for income taxes(10) 
NET INCOME (LOSS)90,012 (6,769)
OTHER COMPREHENSIVE LOSS
Available-for-sale debt investments:
Change in net unrealized losses, net of income taxes(342) 
Net losses reclassified to earnings, net of income taxes38  
Total other comprehensive loss, net of income taxes(304) 
COMPREHENSIVE INCOME (LOSS)$89,708 $(6,769)
Net income (loss) per share
Basic$0.70 $(0.09)
Diluted$0.66 $(0.09)
Weighted average number of shares outstanding
Basic128,788,715 74,647,985 
Diluted135,812,697 74,647,985 
See accompanying notes.
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (UNAUDITED)
(In thousands, except share data)
Common StockAPICNotes Receivable from StockholdersAccumulated Other Comprehensive LossAccumulated DeficitTotal
SharesAmount
BALANCE—December 31, 2020126,911,861$12$373,129$$$(177,443)$195,698
Issuance of common stock3,617,286136,62636,627
Stock based compensation6,5536,553
Other comprehensive loss(304)— (304)
Net income— — 90,012 90,012 
BALANCE—March 31, 2021130,529,147$13$416,308$$(304)$(87,431)$328,586

Common StockAPICNotes Receivable from StockholdersAccumulated Other Comprehensive LossAccumulated DeficitTotal
SharesAmount
BALANCE—December 31, 201974,449,847$7$181,567$(9,175)$$(169,826)$2,573
Issuance of common stock531,7641,2771,277
Stock based compensation277277
Net loss— — (6,769)(6,769)
BALANCE—March 31, 202074,981,611$7$183,121$(9,175)$$(176,595)$(2,642)
See accompanying notes.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (UNAUDITED)
(In thousands)
Three Months Ended March 31,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$90,012 (6,769)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization505482
Stock-based compensation6,553277
Inventory provision392
Change in fair value of public and private placement warrants(116,125)
Loss in equity method investment643696
Non-cash lease expense—operating leases5857
Non-cash lease expense—finance leases7171
Other(113) 
Changes in operating assets and liabilities:
Accounts receivable(603)26
Inventories(1,144)(961)
Prepaid expenses and other current assets(7,023)691
Accounts payable2,630853
Accrued expenses250441
Interest accrued on notes payable239
Deferred costs(998)
Contract liabilities857367
Operating lease liabilities(60)(53)
Other, net(77)(48)
Net cash used in operating activities(24,172)(3,631)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments(281,124)
Proceeds from maturities of investments32,318
Proceeds from sales of investments1,300
Equity method investment(4,000)
Capital expenditures(1,617)(601)
Net cash used in investing activities(253,123)(601)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible notes 4,924 
Issuance of term notes 750
Issuance of common stock1,277 
Exercise of stock options4,681 
Exercise of stock warrants21,526 
Principal portion of finance lease liabilities(76)(69)
Net cash provided by financing activities$26,131$6,882
(Continued)
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (UNAUDITED)
(In thousands)
Three Months Ended March 31,
20212020
Net change in cash, cash equivalents and restricted cash$(251,164)$2,650
Cash, cash equivalents and restricted cash, beginning of period293,9421,929
Cash, cash equivalents and restricted cash, end of period$42,778$4,579
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents$41,278$3,079
Restricted cash1,5001,500
Total cash, cash equivalents and restricted cash$42,778$4,579
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$86$588
(Concluded)
See accompanying notes.
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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”) 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 this specific production 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.

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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.

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.
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 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.
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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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 months ended March 31, 2021, changes in contract liabilities were as follows (in thousands):

Three Months Ended March 31, 2021
Beginning balance $815
Revenues recognized (926)
Increase due to billings 1,783 
Ending balance$1,672

Contract liabilities are earned as services and prototypes are transferred to the customer. The remaining contract liability balance as of March 31, 2021 is expected to be earned and recognized as revenue within the next twelve months.
As of March 31, 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. As of March 31, 2021, we had $555.1 million of unsatisfied performance obligations related to minimum quantity purchase commitments included in these contracts. For $311.9 million out of the $555.1 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 $292.5 million under certain make-whole provisions included in these contracts. 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. Of the $555.1 million of unsatisfied performance obligations as of March 31, 2021, $23.4 million is expected to be satisfied during the fiscal year ending December 31, 2021, $442.4 million is expected to be satisfied during our fiscal years ending December 31, 2022 and 2023, and the remaining $89.3 million is expected to be satisfied thereafter. 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 Joint Venture, 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 Joint Venture, or pursuant to an agreement with the Joint Venture, 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 steady 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.
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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following tables disaggregate revenues by type of products, services and segment for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31, 2021
Romeo Power 
Joint Venture 
North AmericaSupportTotal
Product revenues:        
   Modules$91$$91
Packs250250
Total product revenues341341
Service revenues:      
Non-recurring engineering and prototype
Total service revenues
Related party revenues:
Related party modules256256
Related party packs1515
Joint Venture support442442
Total Related party revenues271442713
Total revenues$612$442$1,054

Three Months Ended March 31, 2020
Romeo Power 
Joint Venture 
North AmericaSupportTotal
Products: revenues        
Modules$1,588$$1,588
Packs
Total product revenues1,5881,588
Services: revenues      
Non-recurring engineering and prototype5252
Total service revenues5252
Related party revenues:
Related Party Module
Related Party Packs
Joint Venture support882882
Total related party revenues882882
Total revenues$1,640$882$2,522

The following table disaggregates revenues by when control is transferred for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,
20212020
Point in time$612$1,640
Over time442882
Total$1,054$2,522

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4.    INVENTORY

As of March 31, 2021 and December 31, 2020, inventory consisted of the following (in thousands):

    
March 31, 2021
    
December 31, 2020
Raw materials $3,780$4,064
Work-in-process1,204531
Finished goods705342
Total inventories $5,689$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 March 31, 2021, we recorded a write-down of $0.4 million of inventory in cost of revenues. We did not record any write-downs of inventory in cost of revenues during the three months ended March 31, 2020.

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.
As of March 31, 2021, HBR had not yet begun construction of the battery recycling facility or begun operation of the System. Therefore, during the three months ended March 31, 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”).
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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 $72.2 thousand in connection with the redemption.

The Public and Private Placement warrants are recorded as liabilities in our condensed consolidated balance sheets.

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.
Following the Business Combination, the outstanding stock options issued under the 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 three months ended March 31, 2021 we did not grant any stock options to employees. During the three months ended March 31, 2021, our employees exercised stock options totaling 836,749 shares for total proceeds of $4.7 million.
The fair value of the time-based stock options granted during the three months ended March 31, 2020 was determined using the following assumptions:
Fair Value Assumptions:Three Months Ended March 31, 2020
Risk-free interest rate 0.92%
Expected term (in years) 6.5
Expected volatility 60%
Dividend yield 0%
Grant date fair value per share1.44

Performance and market-based 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 recognize the stock-based compensation expense over the requisite service period, which is from December 29, 2020 through June 28, 2021.
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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
The number of shares that will be exercisable, if any, is determined solely by the average of the closing price per share of our Common Stock on each of the five trading days immediately following the expiration of the six-month lockup period assigned to Legacy Romeo stockholders in connection with the Business Combination, which is June 27, 2021. The number of shares that may become exercisable is set forth in the table below:
Average Closing Share PriceCumulative 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
As of March 31, 2021, the performance and market-based award is not exercisable, and 4,633,978 stock options related to the performance and market-based award were outstanding.
Stock-based compensation expense
During the three months ended March 31, 2021 and 2020, we recognized a total of $6.6 million and $0.3 million, respectively, of stock-based compensation expense related to the vesting of stock options.
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 March 31,
20212020
Cost of revenues$121 $33
Research and development61 
Selling, general, and administrative6,371244
Total$6,553$277

8.   INCOME TAXES

Our income tax provision consists of federal and state income taxes. The tax provision for the three months ended March 31, 2021 and 2020 was based on the estimated effective tax rates applicable for the three months ended March 31, 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 March 31, 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 March 31, 2021 (in thousands):

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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Amortized Cost

Gross Unrealized Gains
Gross Unrealized and Credit
Losses
Fair Value
U.S. government securities
$52,018$4$(9)$52,013
Municipal securities
59,16025(87)59,098
Corporate debt securities
69,78315(222)69,576
Asset-backed securities18,1961(12)18,185
U.S. agency mortgage-backed securities
18,140(31)18,109
Commercial paper
24,2221324,235
Certificates of deposit
5,000(1)4,999
Total (1)
$246,519$58$(362)$246,215

(1) There were no unsettled sales of available-for-sale debt investments at March 31, 2021.

The following table presents the gross realized gains and gross realized losses related to available-for-sale debt investments (in thousands):

Three Months Ended
March 31, 2021
Gross realized gains$34 
Gross realized losses(72)
     Gross realized loss, net$(38)

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 March 31, 2021 (in thousands):

Unrealized Losses
Less than 12 Months
Unrealized Losses
12 Months or Greater
Total
Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
U.S. government securities
$20,998 $(9)$ $ $20,998 $(9)
Municipal securities
37,691(87)37,691 (87)
Corporate debt securities
66,561(222)66,561 (222)
Asset-backed securities14,934(12)14,934 (12)
U.S. agency mortgage-backed securities
18,109(31)18,109 (31)
Certificates of deposit
4,999(1)4,999 (1)
Total$163,292$(362)$ $ $163,292$(362)

The following table summarizes the maturities of our available-for-sale debt investments at March 31, 2021 (in thousands):
Amortized CostFair Value
Less than 1 year$94,989 $94,998 
1 year through 5 years133,390 133,108 
Mortgage-backed securities with no single maturity18,140 18,109 
Total$246,519 $246,215 

Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.

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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 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 4.75 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.
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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of March 31, 2021 and December 31, 2020, assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

March 31, 2021
Total(Level 1)(Level 2)(Level 3)
Assets:
Cash equivalents:
Money market funds$19,000$19,000$$
Available-for-sale debt investments:
U.S. government securities
52,01352,013
Municipal securities
59,09859,098
Corporate debt securities
69,57669,576
Asset-backed securities18,185  18,185  
U.S. agency mortgage-backed securities
18,10918,109
Commercial paper
24,23524,235
Certificates of deposit
4,9994,999
Total$265,215$19,000$246,215$
Financial Liabilities:
Public Warrants$1,337$1,337$$
Private Placement Warrants10,58410,584
Total$11,921$1,337$10,584$


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 Warrants67,01367,013
Total$138,466$71,453$67,013$

The key assumptions used to determine the fair value of the Private Placement Warrants as of March 31, 2021 and December 31, 2020 using the Black-Scholes model were as follows:

Fair Value AssumptionsMarch 31, 2021December 31, 2020
Risk-free interest rate0.85%0.17%
Expected term (in years) 4.755
Expected volatility 58%57%
Dividend yield 
Fair value of common stock$8.33$22.49

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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11.   NET INCOME (LOSS) PER SHARE

The basic and diluted net income (loss) per share is computed by dividing our net income or net loss by the weighted average shares outstanding during the period. The calculation of basic and diluted net income (loss) per share for the three months ended March 31, 2021 and 2020 is presented below (in thousands, except share and per share data):

Three Months Ended March 31,
20212020
Net income (loss)$90,012 $(6,769)
Weighted average common shares outstanding – basic128,788,715 74,647,985 
Dilutive effect of potentially issuable shares7,023,982
Weighted average common shares outstanding – diluted135,812,697 74,647,985 
Basic net income (loss) per share$0.70 $(0.09)
Diluted net income (loss) per share$0.66 $(0.09)

Potentially dilutive shares that were considered in the determination of diluted net income (loss) per share include stock options and warrants to purchase our Common Stock. Antidilutive shares excluded from the calculation of diluted net income (loss) per share were 11,277,997 and 22,196,804 as of March 31, 2021 and 2020, respectively. 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 March 31, 2020, diluted net loss per share was the same as basic net loss per share.

12.   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.
Net revenues and gross profit (loss) from each of our reportable segments are as follows (in thousands):

Three Months Ended March 31,
20212020
Net revenues:    
Romeo Power North America$612$1,640
Joint Venture Support442882
Total net revenues$1,054$2,522
Gross loss:
Romeo Power North America$(3,826)$(1,242)
Joint Venture Support53132
Total gross loss$(3,773)$(1,110)

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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
All of our revenues (based on location of customer) and long-lived assets were within North America for the three months ended March 31, 2021 and 2020.

13.   TRANSACTIONS WITH RELATED PARTIES

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. Revenue earned for services rendered to the Joint Venture and products sold to BorgWarner during the three months ended March 31, 2021 and 2020 was $0.7 million and $0.9 million, 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.

Transactions with Michael Patterson and related parties — On April 15, 2021, Michael Patterson’s employment with Romeo ended, 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.

14.   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 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. Our business and umbrella insurance carriers have 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 March 31, 2021 and December 31, 2020.

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 July 2021. We intend to defend ourselves against these claims and the possible range of loss, if any, cannot currently be estimated.

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. The relief sought includes money damages, reimbursement of expenses, and equitable relief. The court has scheduled a hearing for July 15, 2021 to consider motions for
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lead plaintiff appointment. We intend to defend ourselves against these claims and the possible range of loss, if any, cannot currently be estimated.

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 relief sought includes money damages, reimbursement of expenses, and equitable relief. We intend to defend ourselves against these claims and the possible range of loss, if any, cannot currently be estimated.

15.   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 March 31, 2021, total revenue recognized included 26% from one major customer, 22% from a second major customer, and 42% from the Joint Venture engineering services, representing 90% of our total revenue. For the three months ended March 31, 2020, total revenue recognized included 62% from one major customer, and 35% from the Joint Venture engineering services, representing 97% of our total revenue.
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, 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 identified 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 12 months, our ability to travel and qualify new suppliers has been directly impacted by COVID-19. During the three months ended March 31, 2021, three third-party suppliers of key single-sourced components and materials used in our battery modules and packs represented 21% of our total purchases during the period. One of these third-party suppliers represented 17% 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 stressed 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 months ended March 31, 2021, 26% of our total purchases were for battery cells, of which 96% 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.

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ROMEO POWER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
16.   SUBSEQUENT EVENTS

On February 16, 2021, we announced the redemption of all the outstanding Public Warrants to purchase shares of our Common Stock, that were issued under the Warrant Agreement, dated February 7, 2019, by and between RMG and American Stock Transfer & Trust Company, LLC, as warrant agent, as part of the units sold in the initial public offering of RMG. 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 $72.2 thousand in connection with the redemption.
On April 6, 2021, we announced a long-term supply agreement with Paccar, Inc. (“PACCAR”). Under the agreement we will be a battery supplier for Peterbilt 579 and 520 BEVs in the United States and Canada through 2025. The start of production is anticipated to begin after 2021. In connection with the long-term supply agreement, we agreed to issue PACCAR 650,000 shares of our Common Stock.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to the “Company,” “Romeo,” “we,” “us,” “our” and similar terms refer to Romeo Power, Inc. (f/k/a RMG Acquisition Corp.) and its consolidated subsidiaries. References to “RMG” refer to RMG Acquisition Corp. prior to the consummation of the Business Combination (as defined below).
Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” relating to our future financial performance, the market for our services and our expansion plans and opportunities. Any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “contemplate,” “intend,” “believe,” “estimate,” “continue,” “goal,” “project” or the negative of such terms or other similar terms. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or otherwise implied by the forward-looking statements, including the following:

risks that we are unsuccessful in integrating potential acquired businesses and product lines;
risks of decreased revenues due to pricing pressures;
risks that our products and services fail to interoperate with third-party systems;
potential unavailability of third-party technology, battery cells, components or other raw materials that we use in our products;
potential disruption of our products, offerings, and networks;
our ability to deliver products and services following a disaster or business continuity event;
risks resulting from our international operations;
risks related to strategic alliances, such as our joint venture with BorgWarner (the “BorgWarner JV”);
potential unauthorized use of our products and technology by third parties;
potential impairment charges related to identified intangible assets and fixed assets;
changes in applicable laws or regulations;
potential failure to comply with privacy and information security regulations governing the client datasets we process and store;
the possibility that the novel coronavirus (“COVID-19”) pandemic may adversely affect our future results of operations, financial position and cash flows; and
the possibility that we may be adversely affected by other economic, business or competitive factors.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with or furnish to the Securities and Exchange Commission (“SEC”), including the information in “Item 1A. Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2020 (“Form 10-K”). If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.
Overview
We are an industry leading energy storage technology company focused on designing and manufacturing lithium-ion battery modules and packs for commercial electric vehicles. Through our energy dense battery modules and packs, we enable large-scale, sustainable transportation by delivering safe, longer lasting batteries that have shorter charge times and longer life. With greater energy density, we are able to create lightweight and efficient solutions that deliver superior performance and provide improved acceleration, range, and durability compared to battery packs provided by our competitors. Our modules and packs are customizable and scalable and are optimized by our proprietary battery management system (“BMS”). We differentiate ourselves from competitors by leveraging our technical expertise and depth of knowledge of energy storage systems.

Our operations consist of two business segments: Romeo Power North America and Joint Venture Support. The Romeo Power North America business segment designs and manufactures industry leading battery modules, battery packs, and BMS technologies for our customers in North America. The Joint Venture Support business segment provides engineering and other professional services to the BorgWarner JV.
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We expect our capital and operating expenditures to increase significantly in connection with our ongoing activities, as the Company:

purchases production equipment and increases the number of production lines used to manufacture its products;
commercializes products;
continues to invest in research and development related to new technologies;
commits to long-term supply agreements with cell suppliers that may require substantial advance payment;
increases its investment in marketing and advertising, as well as the sales and distribution infrastructure for its products and services;
maintains and improves operational, financial, and management information systems;
hires additional personnel;
obtains, maintains, expands, and protects its intellectual property portfolio; and
enhances internal functions to support its future state as a publicly-traded company.
Comparability of Financial Information

Our results of operations and reported assets and liabilities may not be comparable between periods as a result of the Business Combination and becoming a public company. As a consequence of the Business Combination, we became a New York Stock Exchange (“NYSE”) listed company, which will require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance, and legal fees.

Key Factors Affecting Operating Results

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled “Risk Factors” in the 2020 Form 10-K.
COVID-19 Pandemic Update
On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak a pandemic. In addition to existing travel restrictions, some locales may impose prolonged quarantines and further restrict travel, which may significantly impact the ability of our employees to get to their places of work to produce products, may make it such that we are unable to obtain sufficient components or raw materials and component parts on a timely basis or at a cost-effective price, or may significantly hamper our products from moving through the supply chain. We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring some employees to work remotely and implementing social distancing protocols for all work conducted onsite. We have suspended non-essential travel worldwide for employees, and we are discouraging employee attendance at other gatherings.
Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion and intermittent supplier delays. To date, COVID-19 has had a limited adverse impact on our operations, supply chains, and distribution systems, but has resulted in higher cost of raw materials than previously expected. Our efforts to qualify new suppliers, particularly in Asia, have been postponed indefinitely, which delay has required us to continue using higher cost components for our products. Because of travel restrictions, we are unable to visit many prospective customers in person, which could delay the sales conversion cycle. Due to these precautionary measures and resulting global economic impacts, we may experience significant and unpredictable reductions in demand for certain of our products. The degree and duration of disruptions to future business activity are unknown at this time. Ultimately, we cannot predict the duration of the COVID-19 pandemic. We will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements and deploy our production, workforce and other resources accordingly.
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Global Battery Cell Shortage
The cost of battery cells charged by our suppliers, depends in part upon the prices and availability of raw materials such as lithium, nickel, cobalt and/or other metals. Costs for these raw materials have increased due to higher production costs and demand surges in the electric vehicle (“EV”) market. The prices for these materials fluctuate, and their available supply may be unstable, depending on market conditions and global demand, including as a result of increased global production of electric vehicles and energy storage products. A rise in the number of EV start-up companies in the United States that received substantial funding pursuant to capital markets transactions via mergers with special purpose acquisition companies (SPACs) in 2020 has contributed to increases in demand. Any reduced availability of these materials may impact our access to cells, and any increases in their prices may reduce our profitability if we cannot recoup the increased costs through the pricing of our products or services. The availability and price of cylindrical cells is particularly sensitive to the demand surge, since most of the pouch and prismatic cell supply has been allocated previously, in some cases several years in advance.
Our current products are designed around cylindrical cells because such cells allow for optimal energy density, longest life, and highest level of safety. There are only three battery cell suppliers for cylindrical cells (“Tier 1 Suppliers”) whose cells are qualified for use in EV applications because of their superior quality, performance, and safety standards. Other battery cell suppliers, with performing cylindrical cells, are emerging as potentially suited for qualification. We are conducting our rigorous qualification and validation process on these cell supplier opportunities in order to introduce more cell options into our product, without sacrificing necessary performance and safety. Increased demand for electric vehicles globally has outpaced the cell production capacity of the Tier 1 Suppliers. While the Tier 1 Suppliers are increasing their output capacity in Asia and in the United States, electric vehicle battery pack manufacturers are competing for a severely limited supply of battery cells in the short and medium term. As a result of the increased demand and higher raw material costs, battery cell pricing has increased for cell purchases between 2021 and 2023. Pricing indications from our cell suppliers indicate demand will start to stabilize in 2023.
Key Components of Operating Results
The following discussion describes certain line items in our condensed consolidated statements of operations and comprehensive income (loss).
Rev