Ree Automotive reported a mixed financial performance for the third quarter of 2024, with a significant net loss but an increase in liquidity and strategic advancements in production and technology. The company is focusing on expanding its product offerings and optimizing its supply chain, despite facing substantial financial challenges.
Key Takeaways
- Liquidity increased by 47% to $88.8 million.
- Production of P7 trucks has commenced, with North American deliveries targeted for H1 2025.
- Net loss widened to $38.5 million from $10.8 million in the previous quarter.
- Reservation value surged by 230% to $137 million.
- Partnership with Motherson to enhance supply chain management.
Company Performance
Ree Automotive's third quarter showed a widening net loss, yet the company made significant strides in liquidity and production capabilities. The commencement of P7 truck production marks a pivotal step, aligning with growing demand for commercial electric vehicles. The company's strategic focus on software-defined vehicles (SDVs) positions it well within an evolving automotive industry landscape.
Financial Highlights
- GAAP net loss: $38.5 million, an increase from $10.8 million in Q2 2024.
- Liquidity: $88.8 million, up 47%.
- Free cash flow burn decreased by 15% year-over-year.
- $45.35 million raised through a direct offering.
Company Outlook
Ree Automotive is targeting the production of a few hundred vehicles in 2025, with a focus on achieving bill of material breakeven in the second half of the year. The company anticipates higher operating and capital expenditures in the first half of 2025 but is exploring software-based revenue opportunities to bolster its financial position.
Executive Commentary
Tali Miller, Chief Business Officer, highlighted the potential of software-defined vehicles, stating, " Software (ETR:SOWGn) defined vehicles are expected to increase for 90% of auto production by 2029." CEO Daniel Barel expressed optimism about the company's trajectory, noting, "We are getting closer to generating meaningful revenue."
Q&A
During the earnings call, analysts focused on the significant increase in reservation value and the strategic partnership with Motherson. Questions also addressed the expected impact of potential policy changes, to which the company responded with confidence in minimal disruption.
Risks and Challenges
- The company faces a widening net loss, which could strain financial resources.
- Supply chain optimization remains a critical focus, with potential risks in execution.
- Anticipated higher expenses in early 2025 may impact financial stability.
- Market competition and regulatory changes could pose strategic challenges.
- Dependence on successful product launches and market adoption of SDVs.
Full transcript - Rare Element Resources Ltd (REE) Q3 2024:
Conference Operator: Good day, and thank you for standing by. Welcome to the Rii Automotive Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be the question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to our first speaker today, Kevin Shemesh, Chief Marketing Officer.
Kevin Shemesh, Chief Marketing Officer, Ree Automotive: During the course of this call, management will make express and implied forward looking statements within the Private Securities Litigation Reform Act of 1995 and other U. S. Federal securities laws. These forward statements include, but are not limited to, those statements regarding growing demand for RII's products and technology, the potential size and increase of Rhee's order book, that Rhee's philosophy will pave the way for it to generate software based revenues. It's planned to deliver the 1st production trucks to its North American customers and the timing thereof.
Its target of a breaching BOM bill of material breakeven in the second half of next year as it ramps up production and improves operational efficiencies and that its successfully experience with autonomous programs and full redundancy by wire architecture positions it in a leading position at this transformational time for autonomy. Such forward looking statements and their implications involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. The forward looking statements during the course of this call are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the REIT's Annual Report of Form 20 F for the year ended December 31, 2023, filed with the Securities and Exchange Commission and elsewhere in subsequent filing with the Securities and Exchange Commission. Today's call is hosted by Daniel Barrell, Ree's Co Founder and CEO. We will be joined by Josh Teck, our Chief Operational Officer Tali Miller, our Chief Business Officer and Hai Aviv, our new Chief Financial Officer.
I will now turn the call over to Daniel Barrell.
Daniel Barel, Co-Founder and CEO, Ree Automotive: Welcome, everyone, and thank you for joining us today. We are pleased to report Q3 2024 is yet another strong quarter across the board with accelerating demand for re product line and technology from fleets and OEMs along with the start of production of our flagship P7 truck. This milestone is supported by our strategic production partner, Motherson, and is backed by improved liquidity and strong confidence from top tier commercial banks. Having more than doubled our reservation value from $60,000,000 to almost $140,000,000 in 1 quarter, while improving our liquidity by 47% is a testament to our continued devotion to delivering strong results in a fiscally disciplined manner. Before we dive in, I would like to share what we are seeing in the market and how it affects 3.
We are seeing more and more fleets solving critical charging challenges as they shift towards reserving significant production capacity for mature and scalable EV solutions that they believe have significant technological advantages capable of addressing their operational needs while offering an attractive total cost of ownership. Our successful demo program enabled by fleets to experience firsthand the benefits of our P7 lineup and X by wire technology. Now with our collaboration with Motherson underway, we believe those fleets feel more confident in our ability to support their future growing demand. Amidst fierce competition between legacy auto manufacturers and new Chinese OEMs, we're seeing more legacy OEMs looking to expedite their transition to software defined architectures. Collaborating with software defined vehicle technology pioneers allow these automakers to protect and regain market share by offering customers more technologically advanced vehicles with better total cost of ownership and performance, while being able to offer lucrative software services.
RY's philosophy of complete, not compete allows legacy OEMs to access our leading SDV technology, while they can integrate into their current and future product line across multiple vehicle categories. We are seeing growing interest from OEMs that are interested in evaluating RIZ SDV technology, with some actively evaluating our ReCorner and X by Wire technology and our Software as a Service offering. I believe this will pave the path for RII to generate software related revenue and improved margins in the mid and long term. In recent years, we have also witnessed an automotive evolution via a renewed focus on autonomous driving. The commercial vehicle market is suffering from severe driver shortage and autonomy is a compelling solution for fleets and operators.
However, fleets and operators lack a safe, mature and reliable vehicle architecture to support autonomous driving. Our successful experience with leading AD programs such as Airbus underscores our high standards for safety and performance. We believe this position us as the leader in self driving technology at a transformational time for Rhee's X by wire technology with growing interest from leading AD partners. On the operational side, I am very proud of Team Rhee having officially reached the start Re vehicles in North America in the first half of next year. This gives us confidence in reaffirming our bill of material breakeven target in the second half of twenty twenty five with the production of a few 100 vehicles.
This is an important goal rarely achieved in the auto industry and we believe our advanced technology and business model will allow us to meet. We had a strong quarter and we stand today stronger than ever, ready to deliver what we believe is the best product offering in the commercial vehicle space as we face growing demand for our technology with production underway and sufficient capital secured to execute on our business plan. With that, I'll be turning the call over to Josh for operations, Tali for business and of course, Hai for financials. Josh?
Josh Teck, Chief Operational Officer, Ree Automotive: Thanks, Daniel. On behalf of the entire REE team, I'm happy to share the production of our P7 trucks has commenced. We remain on track to deliver the first highly anticipated P7 trucks to our North American customers in the first half of twenty twenty five. Our cross functional team comprising of Rhee, Motherson and Roush is working hand in hand to implement the infrastructure necessary to support our production ramp. Meanwhile, we continue manufacturing our proprietary and revolutionary Recorner at our Coventry Integration Center in the United Kingdom (TADAWUL:4280).
Our work with Mother Sun over the past few months has been smooth, seamless and is progressing well. We are taking a rational, responsible approach to scaling our manufacturing and focusing on long term success. Confident in our approach and the market's demand, we are managing growth in a smart and measured approach. Mother Sun has started supporting our production supply chain management and plan to produce key commodities within their core manufacturing competencies, such as fluid transfer hoses, wire harnesses and plastics. We expect that this will grow as we continue to optimize the supply chain over the upcoming months to increase material margins.
We are also working with Mother Sun on improving supplier payment terms, which help us improve our working capital commitments. All of this improves our capacity to deliver on time and quality, meeting customer needs. Our production team is working closely with sales and marketing to secure production slots for our eager customers. As we prepare to begin to deliver trucks to customers in the first half of next year, we continue to train our dealers and prepare our support and maintenance capabilities in North America. We're also training fleets to be able to do their own maintenance.
Last but not least, we are expanding the number of public charging locations available to P7 customers across North America, in addition to On Depot charging solutions that are available to all our customers. Now I'll turn the call over to Tali.
Tali Miller, Chief Business Officer, Ree Automotive: Thanks, Josh. As Daniel mentioned, demand continues to grow from fleets and OEMs. The number of reservations for our P7 trucks increased by 2 30% quarter over quarter, reaching $137,000,000 representing more than 900 P7 EVs that would be delivered over several years from 30 different customers across North America. We are proud of our diverse customer base and multiple vehicle configurations and use cases. There is tremendous excitement from our customers.
As our demo program has performed across the United States, we have received feedback praising the versatility, maneuverability and design of our trucks. The P7 is built to be flexible, catering the diverse needs of multiple markets. We have seen interest from applications ranging from last mile delivery and mean mile delivery to luxury RVs and shuttle buses. Our X by Wire technology is state of the art, and when combined with the modularity of the re corners and the adaptability of our software, we clearly have a winning formula for commercial EVs and beyond. Additionally, our service network is one of North America's largest for pure commercial EVs, set to provide comprehensive support from start to finish across 80 sales and service points.
Our fleet customers are thrilled that we have kicked off production and we are beginning to allocate the first units of 2025. We are receiving large production reservations from fleets as the P7 program matures, and RII's philosophy to complete, not compete is driving this surge of interest. Those following the industry closely have seen nearly every major OEM make significant investment in software defined technology, which is a Rie core strength. We are in active discussions with several global vehicle manufacturers who are interested in integrating Rie's software defined vehicle technology into their product lines. Conversations with these automakers are progressing faster than previously anticipated.
We believe this is partially due to the macroeconomic conditions affecting the automotive industry globally and the realization that software defined vehicles are the solution to protect market share. As reported by Morgan Stanley (NYSE:MS), software defined vehicles are expected to increase for 90% of auto production by 2029, up from just 3% in 2021. This worldwide shift towards software defined vehicles will offer new revenue opportunities for RE as automakers increasingly rely on the technological innovations and proprietary technologies that we offer. And with that, I'd like to introduce our new CFO, Chai.
Chai Aviv, Chief Financial Officer, Ree Automotive: Thank you, Tali, and hello, everyone. I'm thrilled to be back at 3, especially at this pivotal moment in the company's goals. It's impressive to see how this management team has navigated through business cycles and achieved key milestones. Since I've been with me before, my learning curve here is rapid, and I look forward to addressing all questions from our investors and analysts today. As Josh mentioned, we are working closely with Motherson and Rausch to optimize our costs as we increase production to meet high demand.
The numbers at this point are encouraging, and we hope to share more information in the future. Importantly, Rhee has a strong balance sheet and the liquidity required to execute our business plan. We are financing our production needs through credit facilities as we currently secured up to 33,000,000 credit facilities from 2 top tier banks to support our working capital needs. As demand grows, we will be looking to expand those lines in order to support our going demand. Our liquidity totaled 88,800,000 at the end of Q3, reflecting a 47% increase Q over Q.
This includes 45,350,000 in gross proceeds from the registered direct offering led by Re's long term automotive focused investor, M and G, with Mother Sun contributing 15,000,000. The liquidity balance also includes a 15,000,000 credit facility. Subsequent to the end of Q3, we signed a term sheet for an additional 18,000,000 non dilutive credit facility through PO Financing. This financing will allow Rhee to take on larger reservation and lead to expansion while remaining flexible and freeing up working capital. We believe that the 33,000,000 total in commercial bank credit facilities demonstrates bank confidence in Re's business model, commercial demand and ability to deliver.
Now let's review the P and L numbers. In Q3, GAAP net loss was 38,500,000 compared to 10,800,000 in Q2 2024 and 24,100,000 in Q3 2023. The GAAP net loss Q over Q increase was driven mainly by non cash measurement of warrants and derivatives, following an increase in Re's share price as well as by an R and D tax credit from the UK government recognized in the previous quarter. When excluding warrants and derivatives non cash re measurement and the UK R and D tax credit, our GAAP net loss actually narrowed by 2,400,000 Q over Q. Non GAAP net loss in Q3 was 16,800,000 compared to 12,400,000 in Q2 2024.
The Q over Q increase was impacted by 5,700,000 R and D tax credit from the UK government recognized in the previous quarter. Excluding the R and D tax credit, the non GAAP net loss decreased by 1,300,000 compared to Q2 2024. A reconciliation of GAAP to non GAAP measures have been provided in the financial statement tables including in our earning press release. Our free cash flow burn continued to narrow with a 15% decrease year over year related to continued operational efficiencies and substantial completion of the R and D phase of P7 program. I'll now turn it back over to Daniel for his closing comments before going to Q and A.
Daniel Barel, Co-Founder and CEO, Ree Automotive: Thank you, Chai. It's really great to have you back. We had another very strong quarter during which we achieved major milestones from accelerating demand and improved liquidity to the start of production. We are getting closer to generating meaningful revenue and we see a path towards software based revenue from OEMs and autonomous driving programs. Before opening it up to Q and A, I want to thank the entire Teamri for their devotion and dedication.
Together, we have accomplished so much during the past few quarters. Finally, I would like to thank our long term investors who continue to show their support and belief in what we do, providing the resources that enable us to lead this industry. With 2025 just around the corner, we are excited to start this new chapter in the Re story. We feel highly optimistic heading into the New Year. With that, operator, please open the Q and A.
Conference Operator: Thank you, dear participants. And now we're going to take our first question and it comes from the line of Craig Irwin from Roth Capital Partners (WA:CPAP). Your line is open. Please ask your question.
Craig Irwin, Analyst, Roth Capital Partners: Good morning. Thanks for taking my questions. So the biggest surprise this morning is your $137,000,000 in reservations. That's a big jump. So you guys have obviously been working hard and seeing some good results from your demonstrations.
I think you said 300 in the press release. Talking to some of your customers this last year, I knew that there were customers out there talking about orders, individual orders as big as 1,000 units. Can you maybe talk about the incremental orders that you booked in the last few months? Approximately how many customers contributed in here? Are they names that we've already talked about or are there new names?
And are there maybe specific dealers that are getting more traction than others at this point as customers are getting to know the capabilities of your technology?
Daniel Barel, Co-Founder and CEO, Ree Automotive: Sure. And of course, good morning and thank you for the question. This is Daniel. So yes, I agree with what you said in part. There is a we see a very big surge in reservations.
And I think, one, it's like you mentioned, it's linked to the fact that now with our announced partnership with Madison and Rausch, As we said earlier, customers are feeling more secured and comfortable placing significant reservations with us. And I think this is one of the things we're seeing now. And it's also important to mention that significant scale up of more than 200% is was done in 1 quarter. So to your question, yes, naturally, we're speaking to current customers and postpaid customers about additional orders and securing production capacity going forward. Currently, in terms of how this the reservation book looks like, we're talking about 30 customers 30 different customers among which we've shared some of those names that people already know and are in the public domain, leaders in the industry, including very large fleets.
And I believe we will continue to see more reservation piling up as we move forward.
Craig Irwin, Analyst, Roth Capital Partners: That's very good to hear. So then that's a good segue into my second question, right? So Motherson, can you maybe give us a little bit more color on the work that they've been doing on supply chain optimization and their contribution to your manufacturing plans? Any detail as far as their evaluation of your bill of materials breakeven for the second half? How are they contributing here?
Daniel Barel, Co-Founder and CEO, Ree Automotive: I think it's a great question for Josh to answer. Josh?
Josh Teck, Chief Operational Officer, Ree Automotive: Yes. Hey, guys. How's everyone doing? Yes, yes, so a good question. So Mother Sun, so far, it's been a great partnership.
We've basically worked through getting seamless integration between the Re and the Mother Sun team. Currently, they're supporting our they're basically overseeing the supply chain at about 50% already. So that's making great headway. Another part where they're coming in is basically in parallel to launch Mother Sun will produce the key commodities that are basically in their core competencies. So these are things we mentioned like fluid transfer, harnesses, plastics, those types of things.
And then we expect as we grow and as production tooling comes online and we mature the vehicle that those will even increase further into different commodities. The other big one is to work on payment terms. We're working on payment terms with us, especially as we grow the volume that will allow us to basically optimize the working capital model. So many facets there with the relationship of Mother Sun so far.
Craig Irwin, Analyst, Roth Capital Partners: Excellent. Excellent. Last question, if I may. Cash use, your free cash flow below $17,000,000 You're making strong progress. But the good news is that you've been very successful in raising capital in the last number of months.
How should we think about cash use in 2025 as we look at maybe a tempo that changes throughout the year when you invest for ramping production?
Daniel Barel, Co-Founder and CEO, Ree Automotive: Yes. I think we've seen very strong support from the financial side, both when raising equity and recently with the credit facilities that we've secured. And I think it's a very good testament to the belief and confidence that the financial sector has in our business model, technology in general in us. And I think it's important to recognize it because it's been it's not been straightforward in the past few years to be able to do things like that, especially for technology companies that are kicking off production. So we're very, very happy with that.
Going forward, in terms of burn, I think Hai can give some more detail.
Hai Aviv, Chief Financial Officer, Ree Automotive: Sure. Thanks for the question. So on a monthly basis, we anticipate an average burn of between EUR 5,000,000 to EUR 6,000,000 in 2025, but that's on the monthly average burn. We anticipated both up OpEx and CapEx spend will be higher in the first half as we start production plan to start production in the second half of twenty twenty two. So we expect higher spend both in OpEx and CapEx in the first half of twenty twenty five.
Craig Irwin, Analyst, Roth Capital Partners: Excellent. Well, congratulations on the progress here. I'll go ahead and hop back in the queue.
Hai Aviv, Chief Financial Officer, Ree Automotive: Thank you.
Conference Operator: Thank you. Now we're going to take our next question. And the question comes from the line of Sameer Joshi from H. C. Wainwright.
Your line is open. Please ask
Kevin Shemesh, Chief Marketing Officer, Ree Automotive0: your question. Good morning, good afternoon. Thanks for taking my questions. Congrats on all the progress. So looking forward, maybe a little bit premature, but looking forward, once you have delivered in the second half, there's hundreds of vehicles, is there a service network set up in the U.
S? Or at least are you talking to partners? Just wanted to see how that part of the business is being looked at and if you need to make your own investments in that effort?
Kevin Shemesh, Chief Marketing Officer, Ree Automotive1: Yes. Hi, good morning. Thank you for this question. This is Tali here. Yes, we've put together already a service network across U.
S. And Canada to support all the service for the vehicle that will be soon in production and on the roads. We currently Yes,
Kevin Shemesh, Chief Marketing Officer, Ree Automotive0: sorry, go ahead.
Kevin Shemesh, Chief Marketing Officer, Ree Automotive1: Maybe just to add a little bit more color, we currently have 80 sales and service points. So that was just to complete my answer.
Kevin Shemesh, Chief Marketing Officer, Ree Automotive0: Yes, okay. So those 80 sales points are also service points and there is liquidity to the expanding network?
Daniel Barel, Co-Founder and CEO, Ree Automotive: Yes, that is correct. So basically, the way we look at it is what we're seeing now with the surge in reservations, we're seeing fleets and other customers trying to compete on securing priority capacity. As they move forward and look at their electrification plans and want to secure enough capacity, so we're seeing competition over priority slot. And naturally, as we touched maybe earlier and also this point segues to that is the fact that this is happening now is because, 1, our ability to deliver products at scale and at quality because of our partnership with Mother Sign Raff, but not less importantly, what you just mentioned, our ability to service them post sale. So real service network, which is dealer base is one of the largest in North America with 80 locations that people can actually customers can service their vehicles and they also serve as selling points for dealers to increase the reservations.
Kevin Shemesh, Chief Marketing Officer, Ree Automotive0: Understood. Thanks for that. Also high level question, there's a new administration coming in the U. S. And there are talks about tariffs.
I know also on the incentives portion, I know most of your customers are probably availing of the state level incentives, but there are some federal incentives that could be in jeopardy. Just wanted to understand how you view your market in the U. S. Both from a tariff point of view and from an incentives point of view?
Daniel Barel, Co-Founder and CEO, Ree Automotive: Yes. We've been getting that question recently, naturally quite a bit. And we think there is going to be minimal impact, if any, because of our product offers great TCO for our fleet, right, the total cost of ownership as well as our leading software defined vehicle, SDV technology, which is very appealing to fleets and other OEMs and generate significant operational efficiency. So we think that we have a really good strong product in the market. So that's one.
I think to add to that, we're also seeing that tax incentive play less of a role than the overall market demand, especially in commercial vehicles where incentives are very different than the private vehicle incentives, both in size, structures and origin. But I think that it I don't think I want to speculate any further on the distillation that is not yet finalized.
Kevin Shemesh, Chief Marketing Officer, Ree Automotive0: Understood. And then, I just wanted to discuss in my prepared remarks and answers as well. But is the supply chain fully secured? Like, are these parts that was mentioned, the harnesses, the plastics? Is the supply chain for that actually secured or is Motherson working on securing them?
Daniel Barel, Co-Founder and CEO, Ree Automotive: We started production, so we're producing trucks. So we're past that point. We're now with Mother Sun, we're naturally looking to optimize and improve on all factors, but maybe Josh can add some more color on that.
Josh Teck, Chief Operational Officer, Ree Automotive: Yes, just to add these are again, the harnesses and things we already produced trucks, these are things like harnesses built to print Mother Sun can also make that more efficient and faster and better, faster, cheaper basically. So on things like that that they can take right off the bat, they're moving. So those are the simpler parts, 12 volt harnesses, low voltage, those types of things. As we go through the growing the supply chain and ramping, we'll be looking at other optimizations of Mother Sun for resourcing in terms of metals and stampings and that kind of thing. So that comment was around that, around the things that are the low hanging fruit that Mother Sun could take off the bat, they've already taken us over.
Kevin Shemesh, Chief Marketing Officer, Ree Automotive0: Understood. Thanks for clarifying that. And congrats once again on all the progress. Good luck.
Daniel Barel, Co-Founder and CEO, Ree Automotive: Thank you so much.
Conference Operator: Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Daniel Barel, for any closing remarks.
Daniel Barel, Co-Founder and CEO, Ree Automotive: Thank you, operator, and thank you, everybody, for joining us today. We're really, really excited about this quarter, and I'm sure you like we said before, you can hear it in our voices that we are very optimistic heading into the New Year. So we're looking forward to more updates that we'll be able to give. And thank you again, and have a great day.
Conference Operator: That does conclude our conference for today. Thank you for
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