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spk10: Thank you all for joining our third quarter 2022 conference call. We hope that you have seen our press release and investor presentation issued earlier this morning at investors.ree.auto. We will be referring to the presentation during the webcast today. 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 be different from other anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control. Please refer to the company's form 20F filed on March 28, 2022 with the Securities and Exchange Commission, which identifies principal risks and uncertainties that could affect our business, prospects, and future results. We assume no obligation to publicly update any forward-looking statements, except as required by law. In addition, we'll be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, non-GAAP net loss, and non-GAAP EPS. Please see our earnings release for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures. Joining me today as our co-founder and CEO Daniel Burrell, who will provide a commercial update, Josh Tech, our Chief Operating Officer, who will update you on operations, and our Chief Financial Officer, David Goldberg, who will conclude the company's prepared remarks with a discussion on our financial results and outlook and initial margin guidance. At this point, I will turn the call over to Daniel.
spk03: Thank you, Kamal. Good morning. and welcome to our third quarter 2022 earning call. I will begin the call with an update on the progress we are making towards commercialization of our multiple P7 programs as we focus on converting our pipeline into backlog. We are operating in a challenging, unpredictable, and very dynamic microeconomic environment that requires us to double down on our focus and discipline as we continue to execute our business plan both operationally and financially. We have grown our headcount judicially and have been sticking to our game plan, and we believe that we will continue to achieve multiple milestones on time and on budget. We believe we have a winning strategy, designing native modular EV platforms that allows us to address multiple use cases. Not only we have not deviated from this strategy, Our CAPEX Lite model and the favorable unit economics of the segments we are targeting mean that our P7 platform and its Class 3 and 5 variants are fully funded through commercial production. With a global market of medium-duty commercial vehicles of approximately 1.4 million vehicles annually and approximately 600,000 vehicles annually in the U.S. and Europe, the classes we are initially targeting with our P7 programs represent immense opportunities for REE. As is customary in the commercial vehicle segment, REE is offering power by REE vehicles directly to potential fleet customers in distinct product offerings ranging from a cab chassis EV-based on our P7B box truck, or a strip chassis to be completed to a full vehicle by a partnership with body outfitters such as Proxima powered by REE. REE believes pursuing this distinct go-to market path will significantly accelerate the adaptation of EVs by commercial fleet owners and operators. The company's approach is a strong competitive differentiator, allowing it to address a larger market and bring superior commercial EV solutions with a complex slot manufacturing approach. During our last earning call, I made it clear that we would only be announcing firm customer orders, and I am pleased to be in the position to share with you that we have received our first contractually binding orders. Importantly, we have received orders for each of our vehicles. Unique to RE, we have been able to leverage a technology platform, the P7, to develop two vehicle variants with distinct use cases, in a fraction of the time and cost that developing unique vehicles has taken historically. These initial orders are validating in two distinct but related ways. First, the vehicles themselves are performing to our expectations and are being received very positively by both new and prospective customers. This is, of course, essential. Just as importantly, customers have the confidence in our ability to deliver on time and with competitive pricing. Purchasing decisions have not been made simply on the back of test drives. There is significant due diligence that goes into these decisions. To put a finer point on it, customers need to have confidence that we cannot just deliver an initial batch of vehicles, but can deliver them at scale. These are decisions that often require the highest level of approval by a customer. I will briefly share our progress on current P7 programs, Proxima Powered by Reef and the P7B. As I just mentioned, we recently received our first orders for Proxima Powered by Reef Class 5 walk-in step vans and P7B Class 3 box trucks. These orders follows successful demonstration event held in the past few months in the U.S. and Europe, and extensive due diligence by our customers. REE has commenced building its production-intent P7 chassis, and together with EAVS, we intend to deliver Proxima, powered by REE, Tesla, as a fully homologated vehicle for use on public roads in the U.S. We will also be providing test vehicles to some of the world's largest rental fleets and commercial truck retailers in North America. We believe that these orders will be the first in a series that we expect to announce in the coming months as discussions continue with multiple delivery, logistics, and e-commerce prospective customers. The importance of test fleet orders. I mentioned during our last call Some of our prospective customers have very large fleets that will not be electrified all at once and without significant testing. We believe these initial orders will mark the beginning of multiple long-term relationships and that REIT will receive larger orders after customers collect validating data and positive driver feedback. Delivering these initial fleets to customers is a crucial milestones on the task to scale adoption of power by rear vehicles commercial owners and operators are highly sensitive to vehicle uptime durability and efficiency introducing new vehicles into sleep has to make sense from a business perspective and the only way to reach scale adoption of a new vehicle is by introducing test leads and have these test lists operate as well or better than current options. To be very clear, we're not talking about prototypes. These are roadworthy vehicles that customers will be putting to the test in their duty cycles. Our customers will be devoting significant time and resources to understand how our technology fits into their fleet and overall operations. And we will be working alongside them to ensure we are meeting their requirements. I look forward to sharing more updates with you as we head towards commercialization. With that, I would like to pass on the call to Josh, who will describe how we are getting there from an operational and engineering perspective.
spk09: Josh? Thank you, Daniel, and good morning, everyone. As Daniel mentioned, we are moving quickly to have expected capacity established by the end of this year. After finalizing the build-out of our first engineering and integration center in the third quarter of 2022, I am pleased to report that all major equipment is in place. Also, our core engineering competencies have been built out with all functions in place at the required capacity from both a product and process standpoint. As a reminder, we're deploying robotic assembly cells, end-of-line electrical tests, and auto-boxing stations in these assembly cells. An assembly cell is an alternative strategy used in manufacturing that can provide much greater flexibility and scalability than a traditional production line. These cells will make up our re-corner production line in our facilities, where autonomous guided vehicles will move the work-in-process product between stations for both automated and manual assembly, while autonomous mobile robots will bring sub-assemblies to the lines. There are several advantages to this approach. First, it provides the ability to validate all assembly cells quickly by testing and optimizing one cell and then implementing best practices across all the others, which reduces the time to design and develop these assembly lines. Second, the modular production line is also highly automated and flexible, meaning that we can scale up or scale down on a future variance and demand. Finally, assembly cells and production lines can be efficiently lifted and installed at future integration centers as required as we apply one global standard using the plug-and-play format. We are working with top supplier partners on the assembly line and line side controls. This allows us to use cloud-based solutions, giving us complete visibility into all production operations and enabling us to scale manufacturing locally and across global integration centers. These integration centers will be linked to our central control where we can achieve an overarching view from a build perspective along with full traceability of our re-solutions. Unlike many other companies, to optimize the size and requirements of our facility, we are deploying our production line to integrate pre-assembled subsystems provided to us by our third-party partners, such as American Axle and Brembo. It's a CapEx light approach that significantly de-risks execution and allows for a far greater degree of flexibility. As we shared before, REE is establishing itself as a manufacturer of record for our vehicles, making us responsible for the homologation and certification of the electric platform. Homologation and certification activities are progressing on track at the vehicle level. Additionally, core control system software and functional safety development, key elements for the development of mission-specific variations enabled by ReCORNERS are progressing according to plan. In the meantime, our engineering test fleet in the UK continues to accumulate testing and validation miles in anticipation of the start of design intent production in the fourth quarter. In addition to actively running our test fleet through complete vehicle test levels, REA is currently building winter test vehicles for validation in early 2023, which will take place in Sweden. Our winter test vehicles are production intense and will be the first vehicles produced on Reeve's modular production line comprised of 13 automated manufacturing cells. We're excited to be able to begin to validate our assembly line as we remain on track to commence scale production in the second half of 2023. In order to ensure a highly efficient assembly line that meets quality, safety, and financial expectations, We plan to methodically ramp production as we evaluate and optimize processes with the end goal of operating a highly efficient and safe integration center at capacity. I would like to thank three teams across the world for their hard work and dedication towards making this a more sustainable, carbon-neutral world as we rapidly move towards a fully electric vehicle future. With that, I will hand the call over to David Goldberg, RE-CFO, to discuss our financial results. David.
spk08: Thank you, Josh, and good morning. Before reviewing the company's financial results for the third quarter and reiterating our expectations for 2022, I'd like to briefly provide you with expected initial unit economics and give you a sense of the production volume required to reach break-even gross margin, as this is a question that has come up in recent investor and analyst discussions. With our input costs largely known, production plans ready, and positive pricing discussions for our initial vehicle orders, we are able to share guidance for unit economics for when we achieve scale production. With competitive prices for the Proxima powered by REE and P7B box trucks, we believe that we can achieve a break-even contribution margin with production in the low thousands of vehicles at our Coventry Integration Center. Remember, this facility has a designed annual capacity of 10,000 vehicles. It is our intent to provide the market with 2023 volume guidance early next year. Now, turning to our results for the quarter, the company reported a gap net loss of $33.5 million in the third quarter of 2022, compared to a net loss of $25.2 million in the second quarter of 2022. The increase is mainly related to lower income from warrants, remeasurement, along with higher operating expenses. Non-GAAP net loss of $27.3 million in the third quarter of 2022 increased compared to $21.3 million in the second quarter of 2022, primarily due to the timing of expense recognition related to development and production capacity costs. During the third quarter of 2022, the company completed its previously announced exchange offer related to its public and private placement warrants to purchase Class A ordinary shares of the company. and issued 3.1 million Class A ordinary shares in exchange for all the outstanding public and private placement warrants. The warrant exchange both simplified the company's capital structure and reduced the potential dilutive impact of the warrants. Finally, we filed a Form S3 shelf registration and allocated a portion of the shelf to an at-the-market equity program that allows the company to raise up to a total of $75 million at the company's discretion. We did not issue any shares under the ATM program in the third quarter of 2022. We intend to use the ATM program market opportunistically and do not currently plan to issue shares under the program. The ATM program provides us with additional financial flexibility based on our own business . As of September 30th, we had approximately $185 million of liquidity comprised of cash and short-term investments and no debt. we continue to have sufficient funding to take the P7 program through to commercial production. We remain on track to meet our guidance for cash spending in 2022 at a range of $130 to $150 million, inclusive of both capital and operating expenses. Investments of approximately $30 million in 2022 are included in this range. These investments are mainly related to establishing our UK integration center This portion of the budget is effectively committed and is largely being incurred in the second half of the year. I note that some of the expenses related to the establishment of the initial production capacity may not be capitalized and will be recorded as operating expenses. Our OpEx plan is mostly comprised of technical and engineering spend required to execute our P7 programs, according to the timelines we have communicated. It is important to remember that our costs will mirror the execution of our product milestones. For example, if MOUs and other pipeline opportunities convert to firm commitments or existing programs expand in scope, our spending may accelerate. The company may require additional liquidity to deliver those opportunities. Today, we remain focused on executing our clearly defined business plan. While we believe a significant opportunity exists for REIT beyond the markets we are targeting today, the vast majority of our budget has been allocated towards executing the commercialization of the P7 platform in the US and Europe. Before I conclude and we open up the call to Q&A, I'd like to remind you that we have a CapEx-like business model. As Josh described earlier, this is a very different framework than a company that builds large factories with multi-thousand full vehicle production lines. Our liquidity needs are therefore very different than many of our peers. Additionally, we have grown our headcount responsibly and are committed to retaining our lean profile without compromising on the quality of the product we deliver to our customers. With that, we would like to open up the call to questions. Operator?
spk00: Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. Once again, please press star 1 1 if you wish to ask a question. Please stand by while we compile the Q&A queue. We will now take the first question. It comes from the line of Mike from DA Davidson and Company. Please go ahead. Your line is open.
spk06: Okay, good morning, and thank you for taking my question. Just a couple of final points on some of the order commentary that you made, Daniel. Can you tell us approximately what number of vehicles have been ordered and what number of customers for each of the models?
spk03: Hey, good morning, of course. So, you know, we've received orders for both vehicles, right, for both the Proxima Powered by RE and the P7B. These are orders from several customers that are the largest fleets in the world with significant volumes. And these orders are the largest easy orders ever. Now, I don't think it's the initial order size that matters, but it's the long-term opportunity here of putting vehicles powered by REIT in their fleet, which gives us the ability to be the validated supplier for EVs for them and ramping it up over the years. That's, I think, what is extremely important with the magnitude and scale of those customers.
spk06: All right. I also saw that EAVX announced an additional Proxima vehicle over the last couple of days. This one, a Class 2 model, I believe, with a different platform manufacturer. Were you looking at that model and were you hoping to be a part of that? Or do you plan to let that company fight it out with, you know, the Fords and GMs in the Class 2 space?
spk03: Um, the P seven platform is aimed or is designed for class threes to five. So it's not built for class twos. And of course, I mean, EVX and the group, um, is a great company, largest top hat builder in, in North America. And of course the relationship is exclusive between us and them, uh, both sides. Um, I would imagine that we would be looking at Class 2s later down the road, but currently we're totally laser-focused on P7, which is Class 3 to 5.
spk06: Okay, okay. And then maybe one last one for me. I've started to see other EV companies who plan to use a third-party platform in their vehicles, use a re-chassis in their artwork, that's around their vehicles that they plan to offer in the coming years. Can you tell us maybe, you know, how many other companies you're talking with outside of EAVX eventually in the future to add? I would imagine it's still the P7 or a similar platform. Just some number or commentary around other companies that you're also chatting with beyond EAVX at the current time.
spk03: Yeah, so it would be, Right to assume that we're speaking to quite a few companies on the market, and we are looking to collaborate with them as we want to be able to offer powered by re-vehicles, right? The whole complete, not compete strategy is built exactly for that, where we would want to have a re-chassis under any brand out there. And of course, there are a few OEMs and top manufacturers that are actively looking and exploring power battery chassis in order to move faster on their path towards electrification. So naturally, we will update you guys when the time is right on those, but I can say that there is active discussions on the matter.
spk06: Okay, I'll leave it there. I appreciate the discussion, Daniel. Thank you.
spk00: Thank you. We will now take the next question. It comes from the line of Jeff Osborne from Cohen and Company. Please go ahead. Your line is open.
spk07: Okay, great. Thank you. A couple questions on my end, if you don't mind, Daniel. I was curious on the orders. Are you taking deposits, and where would those show up on the balance sheet?
spk03: So first of all, good morning, Jeff. We're not taking deposits. We're taking payments on deliveries of our orders. And I would assume they would be recognized according to the financial requirements upon delivery.
spk07: Got it. And then I didn't know if you could update us on the homologation timing as you move into the second half of production. What are the milestones that we should be watching over the next six to seven months?
spk03: That's a good point. So we're on track on homologation, of course, in order to put vehicles on the road in the second half of 2023. Homologation is undergoing for both the P7B and the chassis for the Proxima power by rate, the P7 chassis. I think then the next major milestone you should look for is our winter tests in the beginning of the year. And then the certification that will happen towards the second quarter of next year. We should be fully homologated by the third quarter of next year, according to plan.
spk07: Got it. And then two other quick ones. I know you don't want to give the number of vehicles that you've sold at this point or the number of fleets. Could you give us a sense of scope of the number of fleets that are actually engaged in testing? Is this 10, 20 single digits? Any perspective would be helpful.
spk03: Of course. So it's not that I don't want to give those numbers. I just want to make sure that we're concentrating on the importance points in my view. And we've been having double digits in the 20s of companies that have evaluated and tested our products both in the US and in Europe. And what we're doing is we're significantly prioritizing our deliveries and significantly prioritizing the order book. I think it's extremely important to emphasize what are those orders. The orders that we're receiving and accepting are orders for production. It's not orders to be put on the shelf or as a headline. It's literally everything we take and move into production. So each of those orders that we just received is going down to the production line to be produced and delivered. This is why it's really, really, really important for us. to prioritize our capacity, especially the initial capacity, for the leading customers in the world, because I think the most important thing is to deliver on time and on quality, of course, giving them the lowest TCO. And in order to do that, you have to be very disciplined in the manner of accepting those orders and then delivering those orders. And this is why I believe that we want to concentrate on the deliveries and less on the numbers itself. I hope that that answers your question.
spk07: That's helpful. And the last one I had is just you didn't really give an update on Austin, but as we think about 2023, should we assume a similar CapEx profile of about $30 million that Coventry costs you for next year? And then, you know, hopefully a bit of a decline in the OpEx and development costs for 2023 relative to this year that you guided?
spk03: Yeah. I think the best way to look at it is in January when we'll give you guys guidance on all of those. When we look at Austin, you should look at it as naturally the second integration center. And I think it's very important for our scalability and unit economics to first deliver from there in those initial orders, making sure that the line operates well with the quality control needed in order to deploy high-quality vehicles. And then we'll kick off Austin when we see the relevant demand for it and the level of maturity of the UK line.
spk07: Got it. That's all I have. Thank you.
spk03: Pleasure.
spk00: Thank you. We will now take the next question. It comes from the line of Tyler DeMatteo from BTIG. Please go ahead. Your line is open.
spk01: Hi, everyone. Good morning. Thanks for taking the question. Daniel, I wanted to follow up on the comment you just made about prioritizing the order book. Can you add some more color to how you're thinking about doing that in terms of, like, are there certain contracts that require delivery before others, or just any other color on how you think about prioritizing the different customer bases? I would appreciate it. Thank you.
spk03: Sure. And I think this is a very important question. We are interested in putting our vehicles on the road. and putting an easy on the road is a bit complicated because if you think about it you need to make sure that you have the infrastructure in place that the customer has a sleep to be able to serve it on a challenge or prioritizing Orders that nobody's going to be serious enough to take. Prioritizing only the most serious orders, the ones that we know the customer we're going to be putting on the road. The moment they get it, we work directly with them, of course, on the infrastructure and everything needed in order to do that. And I think the second big of it is as we ramp up our production, each vehicle that we produce counts. because we ramp up gradually, like everybody else, of course, and we want to make sure that the entire capacity is aimed at our largest and the biggest customers that we have. And last but not least, keep in mind that it's a very big commitment on the side of the customers to deploy Sometimes it's the highest level of decisions taking place. And the reason for that is that it requires a lot of resources, not only financials, from the customer when they're adopting a new vehicle and a new fleet. And all those three reasons are behind the fact that I just mentioned that we're prioritizing the orders and the acceptance of them. And with that goal to deliver on time and on quality.
spk01: Okay, great. So then my second one here, can you kind of give us an update surrounding where you're seeing the interest from customers that may be at a regional level in the U.S.? And then also the – the type of customer, without getting into any specific numbers or details, just curious, you know, given the demand from the commercial side in general is very strong, just curious if you had to kind of weight and kind of proportion that, what would that look like in terms of, say, logistics or, you know, I get a sense that fleets is obviously probably one of the most important, if not the most. So just any other color on that would be appreciated. Thank you.
spk03: So we're working with the largest fleets and dealers in the world and in North America. Therefore, they have a global span and they're operating all across the US. I think it would be right to assume that the first deployment will be in the more easy, friendly states within the US. because of the incentive plans and because of the ability to deploy faster, the infrastructures, New York, California, Texas, and others. And on the second part of the question, I mean, we have a global supply chain, both in the US and in Europe, and we can manufacture again, preliminary in the beginning from the UK once we stabilize it and then moving it to Austin that can serve the whole of the US. So there is not going to be a centralized supply chain, but actually a global dispersed one that allows us to keep our margins according to what we want them to be.
spk01: Okay, great. Thank you for the time, guys. Really appreciate it. I'll turn it back to the Q. Thank you.
spk00: Thank you. We will now take the next question. It comes from the line of Colin Lagan from Wells Fargo. Please go ahead. Your line is open.
spk05: Oh, great. Thanks for taking my questions. Just to circle back, I mean, can you provide any broad color on the size of these test fleet orders? Are we talking dozens of vehicles? Are we talking hundreds of vehicles? I don't really have any context there. And you also mentioned, I think, Over 20 customers have tested. I mean, any color, though, in terms of how many have actually taken the test orders? Is that three or is that all 20 taking orders? Any sort of guideposts there we could sort of get?
spk03: Yeah, sure. Good morning. I mean, on the order side, I think we want to be able to control the narrative on those announcements. with whom exactly that and what is the size. I can say that it is significant numbers for both for us and even more importantly for those customers that are ordering. So I think we will be sharing far more news on that together with our customers and partners in the coming weeks.
spk05: So what is significant? Is that hundreds then? Is that hundreds of orders?
spk03: I mean, that would be a fair assessment. And again, we will be playing the show.
spk05: And what is the timeline between sort of these orders, testing, and actually getting firm orders, is that going to be months? What are you expecting in terms of getting those to convert? Convert to, I'm sorry, to scale orders, you mean? These are test orders, yeah, to scale orders to real orders.
spk03: So I think you need to look at it in a way that some are for test leads, some are for There are no test flights. And the conversion is based on the customer, right? Because some customers would want to test the vehicle for a few weeks, and some would want to test it for more than that. And it depends on the customer themselves. So it's a case-by-case. And I think the moment they are satisfied and happy with the product, we are nominated as an approved supplier, and then orders start to flow. Honestly, it's straightforward.
spk04: Okay. So it could be weeks. It could be much longer. Okay.
spk05: And then when you're ordering, is the price the same when you order a test fleet, or is it sort of a more deliberative cost so they could test it out? Or should we think about those as being maybe as profitable as your normal vehicles on at least a variable contribution basis?
spk03: Yeah. Naturally, it's a little bit difficult to talk about pricing here. We do want to be able to keep our negotiation chips with us. I would say that when you look at Tesla, there is an extra cost to the, and that does not include only the vehicle, but the team of product engineers that we deploy together with those test leads to ensure the successful testing and allocation of the product.
spk05: I guess I'm thinking from a customer's perspective, do I get a discount when I buy a test, or am I just You know, just kind of getting a sense of their commitment here financially.
spk03: No. What I'm saying is it's actually, as a program, a little bit more expensive because you're not only paying for the vehicle itself, you're paying for a supporting team.
spk05: Oh, and they're paying for the supporting team? Yes, of course. Okay, they pay for the support on the vehicle. Okay. Okay. All right. Thanks for taking my questions. Pleasure. Thank you.
spk00: Thank you. There are no further questions on the phone at this time. I would like to hand back over to the speakers for final remarks.
spk03: Yeah, so thank you, everybody, for joining our call. I want to take this opportunity and thank everybody, of course, at Team Re for an extremely hard work during this quarter, going above and beyond in everything they did in order to make this happen. And, of course, I want to be very thankful and appreciative to our customers that have given us their confidence and support in placing orders with us. And with that, I want to thank you all and have a good day.
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