Greetings and welcome to the REE Automotive Second Quarter 2021 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Limor Gruber, Director of Investor Relations. Thank you, Limor. You may begin.

Thank you, operator, and 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 investors.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 different 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 identify 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 Barel, 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 REE 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 REEcorner technology to the world, our EV platform can be used to build zero-emission EV. This will help create a greener, more sustainable world that will allow our customers and partners to lower the 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 vehicle 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 REE’s differentiate and 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 built, 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…

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 REE was not a public company, for the entire second quarter, ended June 30th 2021. I would now like to spend a moment, to connect the dots for many of our milestones achieved so far, to the drivers of our financial performance overtime. In our commercial agreements, we work together with the customers to assess the market and determine a potential five year forecast, and forecasted volume. Following the signing, we initiate the program and nominate suppliers, from our secure and global verified vendor network. The next milestone is customer evaluation of our prototypes, for non-public code. Once completed successfully, the next milestone is customer evaluation of our prototypes or non-public code. Once completed successfully, this is when the customer would place the Film Unit order that will kick in the next milestone of completing a successful public code testing. After this stage, we have to receive purchase orders from customers, which lead to commercial production in the revenue generation. In February, we opened our engineering centers in MIRA Technology Park in the United Kingdom. The location a behalf 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 we’ve previously signed and strengthening our long term relationship. The dates back to when we said joining presented to platform of concept powered by REE. At the Tokyo Motor Show in 2019. Our strong alliance with major global cooperation, such…

[Operator Instructions] Thank you. Our first question comes from Mike Shlisky with D.A. Davidson. Please proceed with your question.

Hi. Good morning, and good evening, guys. I want to start with two topics. One is just on the timeline. And the other one is on some cost question I've got. Just can you clarify 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 agency?

Sure, absolutely. This is Daniel, and thanks for the question. To answer your first question then purchase orders or sales orders are two different things and as high explained that in the outlook and on the path that we will 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 it depends. It depends on the type of vehicle, the different vehicle type or classes required different regulatory approvals. Some of those regulatory approval are being achieved prior to the marriage between the platform and the top hat. And some, for example, like crash testing, full crash testing needs to be done with a full vehicle. But naturally there are elements that can be tested for example, on our 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 taillight, 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? So, do you -- first you can get there within two years -- your first production date?

Yes, that's the 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. Let us focus on reaching those milestones that we set out to do.

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

Yes. So, this is Hai, 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 from the add count and other disciplines in engineering. And as a result, we increase 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.

[Operator Instructions] Our next question comes from Jeff Osborne with Cowen. Please Pacific your question.

Hey 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 REEcorners that you have?

Yeah, sure, Jeff, and this is Daniel, Hi, good afternoon. So I think it's, it's quite straightforward as we look, 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, then 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 can think sit on our website that we are already demonstrated quite a few non-public road tests that you can find out there.

Got it? So, 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?

No, I do hope we don't go to the desert during this early summer because that's beyond hot. But 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 -- for 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 costs and giving them away for free?

Yeah, so this is a great question for -- so for preproduction costs, 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 find our projections for the next five years. And of course, we feel comfortable with this projection. 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 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 much significantly lower than the operational expenses. We anticipated CapEx expenditures will go 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?

Yes, 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. We also – that's why we provide also the non-GAAP net loss, which we believe is more preventative.

Got it? That's all I had. Thank you.

Thank you. Our next question comes from Igor Levi 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 REEcorner technology and the modules flat platform will change the actual EV manufacturing process compared to the conventional EV's? And could you also touch on 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?

Yes, sure, Igor. Thanks for the question, it’s Daniel. Well, that's a bit long of an answer. So I'll try to get through it. And if I miss something, please let me know. The whole idea of the REEcorner is that we've taken everything off the chassis, right? By taking all the drive plan steering, suspension, you know, motors, braking, all that of 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 8 years 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 once the REE technology and REE corner start -- it's completely agnostic to any dimensional change, any change in battery, technology or fuel. So then, of course, it could 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 -- to the end future, give the our partners and customers 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. And oh, and by the way, we do it faster, significantly faster than 8 years to 10 years. And I think, we've recently demonstrated quite a few platforms out there in different sizes and shapes and kind over the past…

Yes, great. Thank you. That definitely answers my question. I wanted to follow-up on some discussion earlier about the milestones, would you be able to touch on what are the most important milestones we should be watching for over the next 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 said them very clearly, and I think I covered that earlier today. And it's in the -- 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 record data network, and of course, public road testing. All those in different paces of -- as per each different program would lead to production. And this is exactly what we're trying to communicate, we are totally fully focused now on execution and executing on the plan and getting to production. Naturally, there are so many different milestones, but those that we mentioned are, I think, a very, very good points to look out as you 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 stories, 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 compared Q2 2021 to the last quarter, the previous one, of course, the operating expenses were higher because we are increasing our headcount and growing.

Okay. Thank you, everybody.

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 Ahishay 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 to for us, 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 REE Automotive, and look forward to updating you on our progress.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.