REE Automotive Ltd.

Thank you all for joining our second quarter 2021 conference call. We hope that you've seen our press release issued earlier this morning at investor.ree.auto. I would like to remind you that today's call may include forward-looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, and assumptions are forward-looking statements. Please note that the company's actual results may differ from other anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control. Please see our recent filing with the Securities and Exchange Commission, which identified the principal risks and uncertainties that could affect our business, prospects, and future results. We assume no obligation to update publicly any forward-looking statements. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, and EPS. Please see our release and filing for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures. Joining me today is our co-founder and Chief Executive Officer, Daniel Burrell, who will provide an overview of our business and give an operations update, as well as our Chief Financial Officer, Hai Aviv, who will continue with the discussion on our financial results and outlook before we open up the call for your questions. At this point, I will turn the call over to Daniel. Daniel, please.

Thank you, Limor. Given this is our first earning release and conference call as a public company, I would like to briefly outline the re-story before we get into the business overview. When we started REE eight years ago, everybody was talking about the future of mobility and yet building cars the same way for over a century. Now approximately two years after we came out of stealth mode and unveiled the REE Corner technology to the world, our EV platforms can be used to build zero emission EVs. This will help create a greener, more sustainable world that will allow our customers and partners to lower their carbon footprint and achieve their financial and environmental goals faster as well as more efficiently. In recent quarters, we are seeing an acceleration in the acceptance of EVs as a sustainable solution with growing tailwinds coming from governments around the globe. For example, earlier this month, the US government announced a target for electric vehicles to make up 50% of all vehicle sales in the US by 2030, which we believe leading automakers are aligned to meet. Industry experts expect the pace of targets to quicken the adaptation of electric vehicles in the US. Given that re-differentiated modular EV platforms reduce time to market for new EVs, we believe This is yet another driver that supports our ability to grow significantly in the coming years. As I stated earlier, not a lot has changed in the manufacturing process of vehicles, whether that is supported by combustion or electric. Today, vehicles are still being built to original configuration, where the only material difference is the substitution of an internal combustion motor for an electric one. The rest of the vehicle and system are essentially unchanged. The components are still between the wheels, which constrains modularity and functionality. At REE, we are fundamentally changing the approach of EV design and manufacturing based on differentiated value-added approach. Re-corner patented technology integrating critical vehicle components such as steering, braking, suspension, powertrain, and control into a single compact module located between the chassis and the wheel. Our fully flat EV platforms are geared to serve as the underpinning on top of which EVs and AVs will be built. RIS EV platforms are designed to provide greater interior space and volumetric efficiency than vehicles built on either internal combustion or conventional electric vehicle architectures. RIS modular EV platforms are thus capable of carrying more passengers, more cargo, and serving longer, translating into major cost savings, lower TCO, total cost of ownership, and even higher revenues to our customers. Thanks to its differentiated characteristics, our technology is future-proof and can be used for building vehicles to serve virtually any application, from delivery and logistics to taxis to passenger shuttles. EVs and AVs powered by REIT are agnostic to vehicle size, shape, power source, and driver mode. They can be operated on either battery or fuel cells and in any drive mode, both human-driven and autonomous, while affording complete design freedom. The ReCorner and ReBoard are designed to be manufactured using a novel manufacturing model via multiple production lines around the world, feeding our global network of integration centers. We do this by partnering with the world-leading T1s to exclusively manufacture the relevant subsystems we require based on current and available production capacity. This means not only faster time to market and a significant lower capital investment required, but also secured supply chain capacity and quality control. Capitalizing on that, we aim for REIT to be the standard for automotive industry. Same as Intel Insight that powers everything from laptops to data centers, our re-corners and EV platforms are intended to power EVs in all shapes, sizes, weights, and dimensions, from small short-range delivery vehicles on one end to long-range delivery trucks or mid-size shuttle bus on the other end. Whatever EV technology wins, RE will succeed. We look at two strategic metrics for deepening our industry penetration as we focus on executing our business plan. One, growing our effective market share. And two, expanding the various vehicle types powered by REIT. This process is already underway as we have signed multiple strategic collaborations with OEMs and other leaders across automotive and mobility sectors. Our approach is to complete, not compete, with OEMs by providing critical EV platforms on top of which they can build any type of EV. We are excited that major corporations such as Hino, Toyota Truck Arm, Magna, JEB Poindexter, a global logistic company, and Navia are starting to choose our technology and platforms and actively working to build their future vehicles with re-insight. In parallel to deepening our industry penetration, we continue to advance production readiness. We announced five different re-corner architectures and opened and staffed a global engineering center in the United Kingdom, which is responsible for engineering design, validation, and testing, as well as regulatory compliance. We also recently announced the location of our first commercial production site, which will be our first integration center and our North American headquarters in Austin, Texas, which will allow us to be close to our partners and customers. With supply chain solidification in mind, we continue to grow our secured global vetted vendors network built from the world's leading T1 suppliers, such as Musashi, Maxion, KYB, and others, with which we collaborate on development and manufacturing of our subsystems to be integrated and assembled in our integration centers. A good recent example to this is our agreement to jointly develop a new lightweight and efficient electric propulsion system with American axle that will support multiple customer vehicle programs and production goals. We continue to make progress and execute in accordance with our plans by creating a multitude of opportunities that will enable us to become the EV industry standard as we continue to build long-term value for our stakeholders. With that, I will turn the call to Chaim.

Thank you, Daniel. I will address our financials for the second quarter along with some of the milestones we reached. It is important to remember that TRI was not a public company for the entire second quarter and in June 30, 2021. I would now like to spend a moment to connect the dots from many of our milestones achieved so far to the drivers of our financial performance over time. In our commercial agreements, we work together with the customers to assess the market and determine a potential five-year forecast and forecasted volumes. Following their signing, we initiate the program and nominate suppliers from our secured global verified vendor network. The next milestone is customer evaluation of our prototypes on non-public roads. Once completed successfully, the next milestone is customer evaluation of our prototypes on non-public roads. Once completed successfully, this is when the customer would place a firm unit order that will kick in the next milestone of completing a successful public roads testing. After this stage, we are to receive purchase orders from customers, which leads to commercial production and revenue generation. In February, we opened our engineering center in Myra Technology Park in the United Kingdom. The location, at the heart of the British automotive industry, allows us to tap a highly qualified talent pool and grow our local workforce. At the end of June, our engineering center was already staffed with 76 full-time employees, mostly engineers. In April, we entered into an alliance with Toyota truck arm Hino Motors, advancing from an MOU, which was previously signed, and strengthening our long-term relationship that dates back to when we first jointly presented to platform a concept powered by we, at the Tokyo Motor Show in 2019. Our strong alliance with major global corporations, such as Hino, is important as we move to enter the light-mid-duty truck market of Class 4 and 5. In addition, we signed a strategic collaboration agreement with Magna International to jointly develop and bring to market modular EVs as well as established go-to-market teams to identify vehicle development opportunities, markets, and customers. Our collaboration with Magna advances our commercialization plans in Europe and North America, not only in modular EVs, but also in the mobility as a service segment, which is one of the fastest-growing segments in the new mobility market. We also signed a development agreement with Navia, a leader in the autonomous vehicle industry, with operations in 24 countries currently, to develop and manufacture the next generation of autonomous vehicles, which are powered by RE and driven by Navia. Following the quarter end, we established a significant potential foothold in the U.S. walking van market. Think of the mail and package delivery tax you see in your area. With a strategic collaboration with JB Poindexter, EAVX. We closed our merger with Tenex Capital at the end of July and now are listed on NASDAQ. We are well capitalized given our CapEx-like manufacturing model that utilizes access manufacturing capacity via an exclusive global network of tier one partners in over 30 countries with point of sale assembly at our integration centers. Turning to our second quarter results. As we continue to ramp and invest in our business, Our gap net loss for the second quarter was $31.2 million compared to $33.9 million in the second quarter of 2020 and $12.6 million for the first quarter of 2021. The increase is primarily related to $20 million of non-cash stock-based compensation compared to $4.1 million in the previous quarter. Non-GAAP net loss for the second quarter was $11.1 million compared to $2.5 million in the second quarter of 2020 and $8.5 million in the first quarter of 2021. As we continue to advance our technological and engineering capabilities with increased investments in R&D. We finished the second quarter of 2021 with cash and cash equivalents of $30 million as compared to $44.7 million at the end of 2020. With the July close of our merger with Tenex, we received gross profits of approximately $348 million, which we expect will fund our accelerated development, support further strategic collaboration, and position us to achieve the start of commercial production in late 2023. We finished the second quarter of 2021 with cash and cash equivalents of $30 million, as compared to $44.7 million at the end of 2020. With the July close of our merger with Tenex, we received gross profits of approximately $348 million, which we expect will fund our accelerated development, support further strategic collaboration, and position us to achieve the start of commercial production in late 2023. We are reiterating a 35% increase in headcount to achieve target of approximately 250 full-time employees by year-end compared to June 30th, 2021, and expect total annual operating and capital expenditures on a non-GAAP basis in 2021 to increase by roughly 25% or $15 to $16 million. This compares to our previous expectations of $64 million. The change is attributed to increased engineering spend to support growth in additional customer programs. Total expenditures will continue to ramp as we head towards commercial launch in 2023. Regarding our outlook, as provided in our earnings release filed earlier today, we expect to continue to execute on RIS commercial programs, including the delivery of first joint prototypes for non-public road sets, expand industry penetration to additional partnerships, and expansion of a variety of EV types powered by RIS, extending supply chain capacity by executing additional collaborations with leading suppliers, growing our global secured vendor network, break ground on our US headquarters and Integration Center. And with that, we thank you again for joining us. We can now open up the lines for questions, please.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment, please, while we poll for questions. Thank you. Our first question comes from Mike Schliske with DA Davidson.

Please proceed with your question.

Hi. Good morning and good evening, guys. I wanted to maybe start with maybe two topics. One is just on the timeline and the other one is on some cost question I've got. Just can you clarify on the timeline here? I'm trying to figure out, can you give us a sense as to how far away you think your first purchase order is going to be, your first binding purchase order? And in a very similar vein, how far along are you in safety approvals for your initial platforms? Do you need to kind of marry the top with the bottom before you obtain any safety approvals from any government agencies?

Sure, absolutely. This is Daniel, and thanks for the question. To answer your first question, purchase orders or sales orders are two different things. And as Jai explained in his outlook and on the path that we drive in terms of milestones, purchase orders that you mentioned are usually given six months prior to production as part of the production sequence. Therefore, for every batch that goes to production, there is a purchase order. So we expect those to arrive when we start production towards 2023. As we also described earlier, once we complete non-public road testing, there is a sales order or a global binding order in order to move to the next or second to last phase of public road testing. So I hope that answers your first question. On the second question, again, unfortunately, the answer is that it depends. It depends on the type of vehicle. The different vehicle type or classes require different regulatory approvals. Some of those regulatory approvals are being achieved prior to the marriage between the platform and the top hat. For example, like crash testing, full crash testing needs to be done with a full vehicle. So naturally there are elements that can be tested, for example, on a platform itself and simulated, but you do have to have some seats and body in order to test, for example, crash.

I guess I kind of wanted to know, I mean, if you started all that process today for all the crash, the taillights, the headlights, all the different things that have to be homologated in each country. If you started that today, is it a less than two-year process? Do you feel like you can get there within two years? Yeah, that's a fair point.

That's a fair point. And listen, we are fully committed to executing our plans. And naturally, this is part of the plan, right? You can't go into production before you get clearance to do so. So we've taken all of those and more into account, and we're now executing clearly on reaching those milestones that we set out to do.

Okay. And then my other topic I wanted to ask about was the cost outlook. I guess I'm trying to make sure I understand, have any costs that you've had recently been higher than expected, higher salaries, benefits, et cetera, or is your higher cost outlook based mostly on just trying to hire folks faster to get things going faster?

Yes. So this is Kai, and Mike, thank you for the question, and good morning. So in terms of the cost, in the first half of 2021, we experienced higher demand both from our partners and potential customers. And we decided to grow both on the ad count and R&D spend and engineering. And as a result, we increased the expectation, cost expectation by 25% to $80 million, both on the operating expenses and the capital expenditure side.

Okay, so it's not because of inflation.

Correct.

Okay.

Guys, thanks so much. I will leave it there.

Appreciate it. Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Jeff Osborne with Cowan. Please proceed with your question.

Good afternoon, guys. A couple questions on my end. I was wondering if we could try to be a bit more specific on bridging the gap between now and late 2023. So is there a timeframe of when we should think about the private road prototypes being on the road and then when public prototypes would be out there, or at least when the first of each of the five different re-corners that you have?

Yeah, sure, Jeff. This is Daniel.

Good afternoon. So I think it's quite straightforward if we look at it backwards, meaning if we are looking at production at 2023, everything needs to be completed by then, right? Otherwise, we can't meet that, right? And we are executing on exactly that plan. So everything that you mentioned in terms of non-public road and public road testing will occur from basically, I would say any time prior to production. Now, keep in mind that different programs might require different pre-production and testing. Some can be jointly tested and some needs to be tested separately. So there is an aggregated timeline to those testing. I'll also point out, you know, you can I think see that on our website that we are already demonstrated quite a few non-public road tests that you can find out there.

Got it. So, you know, do you anticipate any videos or product other than the ones that you're referencing of the videos of you in the desert zipping around. Do you anticipate any other products that would be on private roads that are newly built in calendar 2021 in the second half of the year or is that 2022?

I do hope we don't go to the desert during Israeli summer because that's beyond hot. We're completely focused on the plan and as we evolve And as we continue executing, we'll share more and more of everything that we're doing to make sure that we are as transparent and as open to everything that we're doing with everybody.

Got it. And for Hai, can you just remind me on pre-production prototypes for private roads? Does that trigger a revenue event, or are you producing those at cost and giving them away for free?

Yeah, so this is a great question. So for the pre-production cost, revenues can be recorded in some cases. Currently, as you can see, no revenues were recorded so far.

And do you anticipate any revenue in calendar 2021?

Yeah, so we filed our projections for the next five years. And of course, we feel comfortable with these projections. So Based on our expectations, we can meet the revenues based on these projections.

Got it. And then just following up on Mike's question prior on the increase in outlook to 80 million, which is great to hear that, you know, the development cycle is accelerating. Can you be more specific as to the CAPEX versus OPEX mix within that? And then also as a separate question, if you have any guidance or commentary on how we should think about stock-based compensation for GAAP results for the rest of the year.

Yes. So for your first question, we haven't disclosed the mix between the CAPEX and OPEX. And as you can see in the second quarter of 2021, the CAPEX share was significantly lower than the operational expenses. We anticipated CAPEX expenditures will grow up significantly in 2022. when we'll open the integration center in Austin.

Got it. And any thoughts on how to think about stock-based comp for the rest of the year is 20 million a quarter, a good number, or was that a one-time event in the second quarter?

Yeah. So stock-based compensation, of course, this is a non-cash item. And as you see, if you compare the stock-based compensation versus previous quarter, it's been volatile. and we expect to continue to be volatile in the next quarter. That's why we provide also the non-GAAP net loss, which we believe is more representative.

Got it. That's all I had. Thank you. Thank you. Our next question comes from Igor Leddy with BTIG. Please proceed with your question.

Hey, guys. Thank you for taking my questions. Could we just step back a bit from the details and kind of go more at looking more at the big picture and go through how the re-corner technology and the modular flat platform will change the actual EV manufacturing process compared to the conventional EVs? And could you also touch on the the time and cost savings in both the manufacturing as well as the reduced TCO, which is the total cost of ownership for the end user.

Yeah, sure. Thanks for the questions, Daniel. Wow, that's a bit long of an answer, so I'll try to keep it short. And if I miss something, please let me know. The whole idea of the re-corners is that we've taken everything off the chassis, right? By taking all the drivetrain, steering, suspension, you know, motors, braking, all that off the chassis, we're allowing for far better modularity. Why is that important? Because as you try to build different kinds of vehicles faster to the market, you have to invest billions and billions of dollars and sometimes eight to 10 years in developing each platform. And every time you want to change it by six, seven inches, more or less, you need to build a new platform altogether with that same investment, both in time and resources. And what the RIG technology and the RIG Corner does is it's completely agnostic to any dimensional change, any change in battery technology or fuel cells. And of course it can be autonomous or manually driven. So full future proof, if you'd like, agnostic to any dimensional changes of that sort. So it allows us to address a much broader array of vehicles to current developed today and future. give our partners and customers a complete freedom of design because it's very, very flat and modular to build any type of vehicle and service they want on top of that. And we do it at a fraction of the cost. Now, that's the first part of your question. Oh, and by the way, we do it faster, significantly faster than eight to 10 years. And I think we've recently demonstrated quite a few platforms out there in different sizes and shapes and kinds over the past few years. So that's the first part of the question. And the second part regarding TCO, this is a very, very strong competence of us and a very good question because at the end of the day, TCO is our ability to compare apples to apples, right? It's the ability to compare one vehicle to the other over time. And it takes into account quite a lot of things, among others, purchase cost, residual value, operating costs, maintenance, etc. This is where we excel dramatically because we do quite a few things that take the total cost of ownership significantly down. We talked about it a lot in recent announcements that we've made and also on our deck that we presented as we went through the merger with 10X. I'll just note a couple of those now. One, we extend the life cycle and duty life of the vehicle significantly and prolonging its ability to serve by not only being able to replace those corners that are basically the whole vehicle in less than an hour, but we keep them upgraded over time, both mechanically and over the air, allowing for better functionality and better capabilities over time, allowing our customer to use them for longer. Second, our repair time. and downtime are extremely low since, as I said before, we can change a corner in less than an hour. So there's no more, you know, lengthy repair time where somebody needs to order a part or understand what's wrong with the system. Think about it like a Formula One pit stop. You come in, you change a corner, and you go out in less than an hour, which is very significant. And last but not least, for some of our customers, also our ability to pack more on that vehicle is dramatically important. Think about, let's say you're doing deliveries and you're putting packages on the vehicle because of the low center of gravity that we allow due to the recorner technology, we can pack sometimes 30 to even 36% more. So the volumetric efficiency going up, but you can, meaning you can deliver far more, let's say packages on the same route with the same driver on the same capex of the vehicle, increasing your top line, without increasing the cost and the cost. So these are just a few examples of how we, we innovate and what's the value proposition of using our technology. And I do hope it answered your question.

Yes. Great. Thank you. That definitely answers my question. Um, I wanted to follow up on some discussion earlier about the milestones. Uh, would you be able to touch on what are the most important milestones we should be watching for over the next, uh, year and a half before commercial productions could start. And then until, and then the second part of that is until production, commercial production starts, what is your expected cash burn per quarter?

All right. So these are two different questions. So the first question is, I think what we really tried to do recently is to give very clear understanding as to the milestones. And we set them very clearly out there. And I think I covered that earlier today. and it's on the website. So you should look at, of course, new agreement signing, which represents additional growth. You can look at non-public road testing, nomination of suppliers from our global vetted vendor network, and of course, public road testing. All those in different paces for each different program would lead to production. And this is exactly what we're trying to communicate. We are totally, totally focused now on execution and executing on the plant and getting to production. Naturally, there are so many different milestones, but those that we mentioned are, I think, very, very good points to look out as you

you know, progress and assess our advancement. Great.

And the second part of the question regarding the cash burn.

Yeah. So on the cash burn, we haven't disclosed the quarterly cash burn, only the annual one, which is still the same. We're keeping the same projections both on the revenue side and the cost side. That's on an annual basis. If you're looking at quarter to quarter, if you compare Q21 to the last quarter, the previous one, of course, the operating expenses were higher because we are increasing our headcount and growing.

Great. Thank you. I'll turn it back.

Thank you. There are no further questions. At this time, I would like to turn the call back over to management for any closing comments.

Yes, thank you, Operator.

Much appreciated. And, you know, I would like to say that both Achisha and I, as co-founders, are fortunate to have this amazing and highly devoted team with us around the world. I firmly believe in the power of our organization and our ability to deliver strong long-term value creation for our stakeholders. I look forward to continue our progress in 2021 and beyond as we continue to focus on reaching our milestones, both near-term and in the future. Thank you, everyone, for joining us today. We appreciate your support of Rio Automotive and look forward to updating you on our progress.