REE Automotive - Q1 2024
May 30, 2024
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the REE Automotive Q1 2024 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Brandon Friedman, Capital Markets Counsel. Please go ahead.
Brandon Friedman (Capital Markets Counsel)
I would like to remind you that today's call may include forward-looking statements. Any statement 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 those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control, such as the ongoing military conflict in Israel. Please refer to the company's Form 20-F, filed on March 27, 2024, 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 of these forward-looking statements except as required by law. In addition, we will be discussing or providing certain non-GAAP financial measures today, including non-GAAP net loss and non-GAAP operating expenses.
Please see our financial results press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Listeners and those on our webcast are invited to follow along with our presentation today, which is available on the investor relation portion of our website, or investors may access the link to the presentation directly from today's press release. Today's call is hosted by Daniel Barel, REE's CEO and co-founder. Following Daniel's comments, we will be joined for a Q&A portion of our call today by our CFO, Yaron Zaltsman, our COO, Josh Tech, and our Chief Business Officer, Tali Miller. We will start the formal presentation of our first quarter highlights. I will now turn the call over to Daniel Barel, REE's co-founder and CEO.
Daniel Barel (Co-Founder and CEO)
On behalf of everyone at REE, I welcome current and new investors alike to our first quarter 2024 conference call. We started 2024 with strong momentum and catalytic milestones. We believe that this is an ideal time for those new to REE to get involved, because the future of trucking is changing today. During the first quarter, we commenced deliveries of the world's first full-by-wire, software-driven, certified medium-duty demo trucks to customers across North America, including some of the biggest fleets in the world, namely U-Haul and Penske. Our go-to-market strategy of complete, not compete, which has already gained traction in Q1 and continues to grow, includes working with the largest fleets operators in the U.S., working with automotive manufacturers, and selling through our network of 20 dealers and 66 sales and service centers, and access to a potential of over 200 fleets.
We are proud to partner with Penske, having them starting to offer our electric trucks to their customers, and being U-Haul's first solution to support the electrification of their fleets. We believe this demonstrates our leadership in the industry and the value of our technology delivers. During Q1, our P7-C became the first full-by-wire truck to achieve U.S. FMVSS certification, now eligible for customer incentives of up to $100,000 per truck. This world first prove we are effectively executing on our aims to expedite and solidify the electrification of commercial trucks through software-driven trucks powered by REE. Beyond tracking, we are very proud that Airbus has selected the Powered by REE vehicle to develop and validate fully autonomous driving.
We believe the very strong market response to our Powered by REE and REEcorner technology demonstrate our potential to lead the commercial vehicle segment, driven by highly favorable economics for our customers and buoyed by the U.S. certification we've received, EV tax incentive and regulation requiring the electrification of fleets. After certifying our vehicles in the U.S., this quarter, we started shipping our demo trucks to dealers. This is a significant milestone for our company, and we want to make it clear how we expect these deliveries to translate into further expansion of our $50 million order book representing orders from dealers and fleets. Subsequent to quarter end, more than 120 demo rides were performed with multiple prospects, with the aim to generate follow-in orders based on continued positive feedback received from fleets.
REE's total cost of ownership advantages are clear, and we believe it is a core driver for the adoption, augmenting this economics benefit. As more fleets are experiencing our software-driven, powered-by-REE electric trucks, we are hearing great reviews and reactions. We expect dealers to increase their order size as fleet make purchases from them. In addition to our growing dealers network, as we shared last week, Penske Truck Leasing has started to offer REE trucks to its vast customer base. We believe Penske will have significant effect on our sales. In addition, as we pursue our strategy to complete and not compete, we are in discussions with several automotive manufacturers across the transportation ecosystem to incorporate REEcorner by-wire technology into their electric offering.
Naturally, this will take a bit longer to mature, as with all strategic partnerships, but we believe this will have its, the strongest effect on the large-scale adaptation of our Powered by REE technology in the industry, and will have the potential to expand our product offering across all vehicle categories. A core strength of REE, and what we believe to be a key driver of adaptation of our technology, is our high degree of flexibility in how our product is brought to market. Currently, we offer three ways that fleets and automotive manufacturers can electrify their trucks. One, the integration of REEcorners into any existing platform. Two, the purchase of a REE stripped chassis, upon which a cab and a box truck can be built and customized. Or three, the purchase of a full P7-C cab chassis, upon which the box cargo area can be built and customized.
On the autonomous driving front, we are very pleased to announce that we have been selected by Airbus to develop and validate fully autonomous program based on our full-by-wire technology. This further solidifies REE's technological leadership and opens REE to autonomous vehicle driving market. As autonomous market continue to expand, full-by-wire system for integration and autonomous control systems and the development of peripheral system is expected to become more prevalent. This year, our operational focus is on managing a smooth transition into ramping manufacturing and deliveries to supply against our order book and meet sales goals. As we stated last quarter, we believe that the most of the heavy lifting is behind us. Our efficient CapEx light operation means we believe we can achieve bill of material parity upon production in the low hundreds of vehicles and EBITDA breakeven when producing in the low to mid thousands.
Our two-step manufacturing approach involves continued production of REE corners at our automated U.K. facility, which has an annual capacity of 10,000 vehicle sets. We plan to bring U.S. production online by the end of 2024 and through 2025. We are currently evaluating mainly working capital financing options to allow us to scale production. As we execute on the tremendous opportunity to electrify the commercial truck market, we continue to advance our technology application across different vehicles. I'll touch on some financial highlights, and Yaron Zaltsman, our CFO, will be available on the Q&A to elaborate as needed. REE ended Q1 2024 with liquidity of $77.5 million, comprised of cash, cash equivalents, and short-term investments. This includes a $15 million long-term credit facility.
Our GAAP Q1 net loss narrowed to $25.2 million, a 29% decrease quarter-over-quarter, and 12% decrease year-over-year. Non-GAAP net loss in the first quarter decreased by 33% quarter-over-quarter to $21.7 million and decreased by 10% year-over-year. Free cash flow burn continued to decrease in Q1 2024, with 6% reduction quarter-over-quarter, consistent with the trend in full-year 2023, when we realized a 25% year-over-year decrease. With the strong start of 2024, and with the majority of the heavy lifting behind us, we believe that our REEcorner technology uniquely positions us in a lucrative portion of the commercial EV value chain.
As we set to lead the future of automotive, we are thankful for the support we receive from our investors, and we are excited to welcome those new to REE. Now, let's open the call to Q&A.
Operator (participant)
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. We will take our first question, and your first question comes from the line of Craig Irwin from Roth Capital Partners. Please go ahead. Your line is open.
Craig Irwin (Managing Director and Senior Research Analyst)
Hello, and thank you for taking my questions. So, Daniel, you're adding names like U-Haul and Penske. Obviously Pritchard is a leader in the market and Airbus is clearly a tier one, you know. But, you're adding some really big fleets that really could be essentially all of your demand for the next couple years. Can you maybe talk about the priorities this year as far as where you want to deliver units? Is your goal to service many different fleets and get the units operating in the hands of a large number of customers? Or are you aiming more to have a handful of units into a select number of fleets where you see the greatest prospect for adoption of REE technology over the next couple of years?
Daniel Barel (Co-Founder and CEO)
First of all, good morning. Thanks for the question. It's a good question. I think the answer is we wanna naturally, you know, fulfill our order book, and according to our production plan. And as you mentioned, Penske, U-Haul, Airbus, and of course, Pritchard, and others are very big, and they have huge potential. And of course, we're really excited, for example, by the fact that, you know, Penske are starting to offer our trucks and so forth. And I think we wanna be able to deliver as many vehicles as we can to all of those with demand, and we see huge demand.
And I think the ramp up is important, and how we ramp it up will depend on, you know, on the actual orders behind Penske and U-Haul and others. Potential-wise, it's huge. We're speaking here about the biggest in the industry. And we feel confident that, you know, like traditionally in the industry, this is gonna translate into orders, but I believe we're gonna see this running over time in the next few quarters as we ramp it up.
Craig Irwin (Managing Director and Senior Research Analyst)
Thank you. So one of the biggest catalysts, you know, I'm expecting for the stock is follow-on orders and follow-on deliveries from these early customers that you're delivering units to. Can you maybe talk a little bit about the evaluations that they're doing of the products? You know, U-Haul is clearly putting this in the hands of customers. Are they looking for certain criteria that you can share with us on overall customer performance, you know, operating uptime hours? You know, how should we expect the customers to evaluate the product to confirm that they want follow-on orders and that we see follow-on deliveries later on this year?
Daniel Barel (Co-Founder and CEO)
Yeah. I think the answer for that is that different fleets have different criteria. Some require a few weeks, and some require longer. Some require specific climate conditions, if, for example, they're up north or in Canada or in hot climate, and so on, so forth. I think that once, And I think we've seen it very clearly with the demo program and the 120 demo rides that we already crossed, is that when, you know, customers sit in the truck and try it out, the tech and the truck speaks for itself, and the benefits.
And I think our trucks and our technology answers the majority of the benefits, like, you know, maneuverability, serviceability, low TCO, software-driven, over-the-air updates, and so on and so forth, with which most of it is relevant for all those fleets. And I agree with you that the following orders would be a very great and strong sign as we move forward to scale production and deliveries.
Craig Irwin (Managing Director and Senior Research Analyst)
Great. Last question, if I may. Your R&D spending and G&A were really tightly controlled. You know, given that you have a revenue ramp, and you know, you're serving an increased number of customers this year, you know, that's quite impressive. Can you maybe talk a little bit about frictional costs this year, the investment needed to execute on the business plan?
Daniel Barel (Co-Founder and CEO)
Yes. First of all, thank you for recognizing it. We are reducing those spend because we completed the engineering phase as we communicated, and there are several operational efficiencies in place. And we can expect, I believe, going forward, Yaron can add on that, a lower spend on a monthly basis, significantly, I believe, lower, which is in trend to what you've seen up until now, where we reduced the spend significantly, quarter-over-quarter and year-over-year. Yaron, would you like to add?
Yaron Zaltsman (CFO)
Yeah. Hi, good morning. So the cost will continue to go down. We expect it will be not more than $4 million-$5 million per month, and we also expect generating cash in the UK from the UK government as part of the grant plan of roughly $7 million between Q2 to Q3. So in general, our R&D costs will be going down dramatically during the year.
Craig Irwin (Managing Director and Senior Research Analyst)
Thank you very much. I'll go ahead and hop back in the queue. Congratulations.
Daniel Barel (Co-Founder and CEO)
Thank you.
Uh, hello?
Yes. Shall we go to the next question, operator?
Hello?
Yeah.
Yeah?
Yeah.
Operator (participant)
Yes, Michael, your line is open.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Yes, hello. Can you hear me okay?
Daniel Barel (Co-Founder and CEO)
Oh, hey, Mike. Yes, we can.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Okay. Here I am.
Daniel Barel (Co-Founder and CEO)
Sorry, good morning.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Good morning. Couple of quick follow-ups from Craig's questions. First, on the U-Haul agreement or what they've been taking so far, what they're asking about from you, do you have to make any major changes to the platform or to the software that runs it, to make it user-friendly to a person that maybe doesn't drive a truck normally, maybe someone that might drive a truck once a year, once in a couple of years? Anything you have to change there in your product, to make it user-friendly, or maybe it's already that way to start with?
But any comments you can make on what you originally started out with when you made the replatform and the corner, and what you might have to change for that product, that would be appreciated.
Daniel Barel (Co-Founder and CEO)
Yeah, I think it's a great question. I think what we've seen with the demo program and the you know, all the people who drove it recently, continuous feedback on the fact that it's a truck that drives like a medium-sized SUV. And it's very easy for everybody who never even before driven a truck to drive it safely and properly. It just built like that. That's the beauty of our technology and the by-wire. So to your question, it is great to drive, even for people who have not you know, driven trucks before. That's, that's the secret sauce there.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Okay, got it. I wanted to also follow up on the Airbus agreement that you mentioned, and this is not, you know, news today, but this came out a while ago. But I'm curious, in the picture and on the slides, for example, they almost look like airport support vehicles, but typically, the airplane company does not make those vehicles. I'm just kind of curious, what are the ultimate applications that your product will be in? Is it gonna be just a platform of Airbuses, autonomous vehicle? And it sounds like maybe you're providing just the vehicle and Airbus is gonna be the one making all the R&D expense. I just wanna make sure there's no major R&D that you'll be taking on as part of that program.
It's just maybe just more of a, a supply agreement just for the vehicles themselves. Is that the right way to think about that?
Daniel Barel (Co-Founder and CEO)
Yeah, so I think what, You know, let's start with what the REE trucks and Airbus have in common, which is by-wire, right? Airplanes are by-wire, and we are by-wire. And I think this is what Airbus found very compelling in our technology, which is a mature, autonomous-ready by-wire technology. And this is why we were selected to this joint program around autonomy. The advantages of our system, as we've been saying, for a few years now, is the seamless connection to autonomous driving. So, we're not doing the autonomy driver. We're providing the platform, the by-wire systems to be driven autonomously. And answering your question on spend, there is no additional spend or R&D development for that program.
It is ready to go out of the box as it is now, which is a major, major advancement, achievement, I think, for us.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Outstanding. Yeah, great. And then maybe my last question: You had mentioned in your comments, Daniel, that there are OEMs that you're talking with beyond the ones that you mentioned, that are looking to potentially integrate the platform into their products. So this is not new either. You've talked about that since we first came to market here. But I just wanna make sure, are those companies currently already producing EVs, and are they looking at how they can improve or make their like next gen version of it?
Daniel Barel (Co-Founder and CEO)
Yeah.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Or are they companies that are just behind the times and haven't really made their own EV yet, and they're looking to find a way to get it quickly?
Daniel Barel (Co-Founder and CEO)
The answer is both. These are both traditional OEMs and new OEMs. These, some of them do not have EVs on their offering, some do. We've been saying that there are three ways, you know, to upgrade to by-wire technology. You can either buy the corners and upgrade your current platforms with them. You can buy a full platform and build the rest of the vehicle, or you can buy a full by-wire vehicle, fully certified to go on the road and just put a box behind.
And I think that, following the FMVSS that we have achieved earlier in the year, it gives, it gave a lot of tailwind to a lot of the players that were, you know, still considering and not a hundred percent sure they wanna explore this, to move much faster into exploring and opening the discussion with us as to how to integrate our by-wire technology, the REEcorner, into their offering. That's all part of our strategy of cooperate and not compete. This is exactly what we're built to do.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Sure. Outstanding. I appreciate it.
Daniel Barel (Co-Founder and CEO)
Thank you.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
I'll pass it along.
Daniel Barel (Co-Founder and CEO)
Pleasure.
Operator (participant)
Thank you. We will take our next question. Your next question comes from the line of Jeff Osborne. Apologies, Jeff Osborne from TD Cowen. Please go ahead. Your line is open.
Jeff Osborne (Managing Director and Senior Research Analyst)
Hey, good morning. Thank you. Maybe just following up on that last line of questioning, Daniel, is, are the applications for these new partners, are those also in the commercial vehicle space, or are they more diversified? Any details there would be helpful.
Daniel Barel (Co-Founder and CEO)
I think that the majority, what we can say, that we're concentrating on commercial vehicles, but there is... There are once you integrate into large OEMs, naturally there's an evolution into other categories, like private vehicles and heavier duty vehicles. And we've seen interest in both of that, going lower in class towards passenger vehicles and higher towards higher payload.
Jeff Osborne (Managing Director and Senior Research Analyst)
And then just given that the majority are in the commercial vehicle space, is it right to think that the majority of the R&D has already been done, so the incremental OpEx for working with these partners would be somewhat limited? Just how do you weigh the trade-off of-
No
potential revenue and margin accretion by just selling corners relative to application engineering that would be required for each of these new partners?
Daniel Barel (Co-Founder and CEO)
Yeah. So the by-wire technology is the same for passenger vehicles and commercial vehicles. The time to market is naturally shorter for commercial vehicles because the corners are already built and ready. There is some that would be required, some adaptation, mainly mechanical, but majority mechanical, in order to make it into passenger vehicles or other application, for example, aviation. But we don't see this as a heavy investment or R&D burden on us. On the contrary, the capabilities are there. Margin-wise, we can discuss this in length, but our core technology is the REEcorner, and naturally, our margins are the highest when we do only corners and control.
That has always been our sweet spot, and I remind you that we also completely deployed our CapEx for the REEcorners, so they're already ready for commercialization at scale.
Jeff Osborne (Managing Director and Senior Research Analyst)
Got it. And then maybe just a few housekeeping questions. With the revenue in the quarter, was that the sale of one truck that, you know, was a demo vehicle? I just wanted to understand where the $160,000 came from.
Daniel Barel (Co-Founder and CEO)
Yaron, please.
Yaron Zaltsman (CFO)
Hi, good morning. So the sale was from a platform and not from a demo vehicle.
Jeff Osborne (Managing Director and Senior Research Analyst)
Got it. Then when would you expect first revenue, you know, from the vehicles through the variety of partners that you've laid out over the last six to nine 9 months? Is that still in the third and fourth quarter?
Yaron Zaltsman (CFO)
So I don't think we can provide that information today, okay? The only thing that we can say to you that, after we are starting to scale, we can recognize revenues of all the order books, which is roughly $50 million, probably in few months' time.
Jeff Osborne (Managing Director and Senior Research Analyst)
Got it. And then maybe just the last one, either Yaron or Daniel. How many vehicles thus far have been produced, you know, that are out there in the wild for people to test drive?
Daniel Barel (Co-Founder and CEO)
We've delivered up until now, five vehicles. We've mentioned them all. I mean, you've got Penske, U-Haul, Airbus, Pritchard, and Tom's Truck Center. We'll continue to deliver more, and more will continue to come on the low production rate that we're currently having before what Yaron mentioned in terms of scale.
Jeff Osborne (Managing Director and Senior Research Analyst)
Got it. That's all I had. Thank you.
Daniel Barel (Co-Founder and CEO)
Pleasure.
Operator (participant)
Thank you. We will take our next question. Your next question comes from the line of Amit Dayal from H.C. Wainwright. Please go ahead. Your line is open.
Amit Dayal (Managing Director of Equity Research)
Thank you. Hello, everyone. Good to see all of the business development efforts ramping. You know, you indicated $4 million-$5 million spent per month going forward, which is a little bit lower than the $6 million you had highlighted last earnings call. This $4 million-$5 million, can you break out how much is CapEx within this and how much is operating costs?
Daniel Barel (Co-Founder and CEO)
Sure. Yaron, would you mind?
Yaron Zaltsman (CFO)
Yeah. Hi, good morning again. CapEx is roughly $1 million per month. The rest is operation.
Amit Dayal (Managing Director of Equity Research)
Okay. Thank you. Understood. The autonomous vehicle platform, you indicated everything is ready. Airbus might, you know, ask for certain, you know, modifications, et cetera. Will that fall on Airbus in terms of, you know, contributing to any, features or development activity, or will that kind of, fall on your shoulders to meet whatever requirements, you know, they may have for the vehicle to meet, standards according to, their needs?
Daniel Barel (Co-Founder and CEO)
We delivered the truck. We've fulfilled our part of the agreement. The rest would be software, so there is no changes there needed. The truck is fully capable and ready.
Amit Dayal (Managing Director of Equity Research)
Oh, interesting. Thank you for that.
Daniel Barel (Co-Founder and CEO)
Of course.
Amit Dayal (Managing Director of Equity Research)
From here on, basically, we are waiting on the customer book to build and, you know, based on that, you will then take decisions on the financing side in terms of how you can meet the working capital requirements. Is that the setup in the execution right now?
Daniel Barel (Co-Founder and CEO)
I believe so. I mean, traditionally in the industry, right, fleets do demos, they test the vehicle, and then they provide orders. Initial orders are usually start a little bit smaller and ramp up. Depends, again, on the fleet. Some fleets go on the heavier side, and some fleets goes smaller. The moment we have clear visibility on what we need to build and what the specification and timing, we'll start putting it into our production plan. Remember, what we have now is about just over 350 trucks worth about just over $50 million in book value, in order book value.
And that's before guys like Penske, U-Haul, and others started to offer our trucks to their customers, and we expect that to have significant impact on this growth.
Amit Dayal (Managing Director of Equity Research)
Understood. Just one last one at a high level. You know, recent, you know, sentiment around adoption for hybrid vehicles in the passenger vehicle market, how is that translating into, you know, the fleet side of things? Is, is there some interest on the hybrid side? And if that emerges, you know, how do you think you are positioned to sort of, you know, deal with that type of development?
Daniel Barel (Co-Founder and CEO)
Yeah, we see a very strong demand currently in the market, and that demand keeps on growing. I think it's a different market between the commercial vehicle segment and the passenger vehicle segment. The adoption rate in the commercial vehicle segment is much lower than private, and therefore there's a lot of demand for EVs. We have not seen a lot of demand for hybrids in the categories we work with or we work in, class three to five. Usually you would see them in the lower and higher classes. We don't see any effect on the demand at this point.
Amit Dayal (Managing Director of Equity Research)
Okay, understood. That's all I have, guys. Thank you so much.
Operator (participant)
Thank you. We will take our next question. Your next question comes from the line of Craig Irwin from Roth Capital Partners. Please go ahead. Your line is open.
Craig Irwin (Managing Director and Senior Research Analyst)
Thank you for taking the follow-up question. So your adjusted EBITDA was clearly just a little bit ahead of what we were looking for. But adjusted EPS, the biggest delta came from a $1.4 million tax provision. Can you maybe give us a little color on what the tax provision was? And do you have any visibility of what tax levels could be over the next few quarters?
Yaron Zaltsman (CFO)
Yeah. Hi, good morning, Craig. It's Yaron here. The tax provision is, it's an accounting, accounting provision due to the regulation which we have in the U.K. as part of the R&D plan. So it's not a cash movement, it's only accounting, and it's a probably one-time accounting provision.
Craig Irwin (Managing Director and Senior Research Analyst)
So one-time, non-cash accounting provision. I like that.
Yaron Zaltsman (CFO)
That is correct.
Craig Irwin (Managing Director and Senior Research Analyst)
Thanks. I'll hop back in the queue.
Operator (participant)
Thank you. There seems to be no further questions at this time. Please continue.
Daniel Barel (Co-Founder and CEO)
So I wanna thank everybody for taking the time, to join us here today. And of course, I wanna commend and thank the REE team across the world for an excellent, excellent work in the first quarter of this year, kicking it off strong and proud. Thank you all so much. Have a great day.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.