Q3 2021 Sarcos Technology and Robotics Corp Earnings Call
Good day and thank you for standing by welcome to the Q3, 2021 Sarcos technology and Robotics Corporation earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Please be advised that today's conference maybe recorded.
To ask a question during the session you will need to press star one on your telephone if.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today 10 minutes.
Director of Investor Relations and please go ahead.
Good morning, everyone and welcome to the <unk> third quarter earnings call joining us on the call. This morning is chairman and CEO of vessel and Chief Financial Officer CFO.
That will start the call with an overview of the quarter and Steve will then talk in more detail about our financial results before we take questions.
Before we begin we must state with today's call will contain forward looking statements including statements concerning.
Concerning future commercial availability.
Market trends revenues cost and liquidity.
These statements represent management's best predictions and expectations about the future events as of today, there are many risks and uncertainties.
That could cause the actual results to differ from what we have projected.
We encourage you to review the risks and uncertainties described from time to time in the past.
Information regarding the actual and potential risks.
We also encourage you to review the special note regarding forward looking statements included in our earnings release.
This morning, which will be posted in the investors section of our website at Socgen.
In addition, we will be discussing certain non-GAAP financial measures. This morning.
Throughout the school all financial measures.
Otherwise.
A reconciliation of those numbers to the GAAP.
As long as the description limitations and rationale that matches, our food doesn't really.
Filed with the SEC.
Morning, which is available on our website.
Ah.
A recording of this call will also be on Hawthorne website the.
The information that we're giving you on the call because as of today's date.
We undertake no obligation to a patient information.
So thanks again for joining us at this point I'd like to turn the call over to our chairman and CEO.
Thanks, Dan and thank you to everyone joining us for your interest in Cyprus.
This morning, I will be giving you an update on the current state of business and our expectations for the next few months.
After that I will hand, the call over to Steve who will give you an update on our financial position before taking questions from analysts.
This earnings call is our first as a public company since we listed on the NASDAQ Global market at the end of September through a business combination with rotor acquisition Corp.
The public listing of our stock has been a significant development for our company.
Proceeds from the transaction of over $260 million provides us with the liquidity, we need to continue developing our technology and we firmly believe will be sufficient to enable us to bring our guardian XO full body exoskeleton robot and our Guardian key co operate avatar robot to scale commercial production.
On a side note I would like to take this opportunity to share that now that we are listed more than 80% of our shares are subject to lock up periods of various lengths.
80% of the equity issue.
<unk> current and former employees and common stockholders Sarcos Corp, and the merger, including myself, which represents over 34% of our fully diluted shares is restricted from being sold under lockup agreements and our bylaws until the earlier of the date on which we have shipped our first 20 Guardian, XO and ore Guardian X team commercial.
Actual units and the second anniversary of the closing of our merger with Rowan.
By design.
On the development stage of our company, we think this better aligns our interest with those of our investors.
Events over the past few months have highlighted the ever growing need for our products and solutions.
Shortages of workers to perform physically demanding work have challenged industrial companies all over the world.
Our partners and prospective customers are telling us that the need for our uniquely our unique highly dexterous mobile robots that can form non repetitive jobs is only becoming more urgent.
This shortage of skilled workers is not just an immediate problem for the economy, but it's one that's forecast to get worse in coming years.
The combination of an aging workforce and lowered participation rates and physically demanding jobs by number of workers is expected to continue staffing challenges in many industries for decades to come.
<unk> is uniquely positioned to address these worker shortages.
We are the only company in bringing to market a full body power industrial exoskeleton that materially enhances both strength and endurance.
Our Guardian XO wearable industrial robot is capable of lifting up to 200 pounds and can often improve worker efficiency by a multiple of two three or even more while making workers safer at the same time.
Similarly surface as Pablo operated Guardian X gene Avatar robot allows operators to carry out work in dangerous environments or tight while remaining on the ground and out of harm's way.
It is no exaggeration to say that our partners and potential customers tell us that these machines have the potential to transform the way work gets done across many different industries and is the reason we expect our service obtainable market in the U S alone.
Rose to $24 $8 billion over the next five years.
Given this pent up demand, we are working diligently to bring our flagship products to market.
Over the past two years, we have been working with our partners and potential customers on the Alpha version of the Guardian, <unk> exoskeleton robot to generate feedback on improvements and applications for different use cases.
We will be doing the same with prototypes of the Guardian XP avatar.
This work has been invaluable in improving our products and we are in the process of incorporating feedback we've received on our alpha units into our XO and X T beta designs.
To that end, we are making substantial progress in the development of our XO and equity based units. The first excuse beta unit is being assembled as we speak and we expect to be ready to commence internal testing by the end of this year.
Key areas of improvement between the XP prototypes and XD beta units are additional degrees of freedom in the arms to enhanced range of motion.
A new operator wearable control seat.
Improved chance controllers, and an improved optical system.
As I mentioned, we're making good progress on the Guardian, so beta units as well, we continue to develop and evolve the design in response to our continued testing of the LP units and also initial testing of some of our components and waits for debating.
The design for some portions of the beta are complete and assembly and testing a compound subsystems and links are underway.
Key improvements from the outlet to bind to the beta design include additional degrees of freedom and the robot wrist and ankle.
Enabling the robots to be adjusted to accommodate a range of operator heights.
And other improvements to make the robot more robust and reliable.
As an example, then there'll be alpha unit used a bulk drive system, while the beta units will use an actuator driven system, eliminating the risk of belts, breaking which tend to have introduced a safety risk.
In order to develop this new actuator system, we have.
Currently testing prototypes of our alpha units, which enable us to advance necessary testing prior to the first beta unit incomplete.
Another significant milestone we recently cheap for the XO beta development relates to the robot controlled algorithms in.
In January our controls team was challenged to develop algorithms for the XO that would allow us to balance itself independently of an operator or external control much as you may have seen some cumulative humanoid robots due impart more videos.
Achieving this capability on a wearable humanoid robot is substantially more challenging than a non wearable robot.
This achievement is essential to addressing some of the safety aspect of the XO and I'm delighted to inform you that I was able to observe a successful demonstration of this capability just a few days ago.
Having said all of that the excavator is running somewhat behind X teeth schedule because of the labor and supply chain challenges I referenced back in August.
We currently have more than 30 open engineering positions.
We are fortunate to be able to continue to hire great people, but we simply arent hiring as quickly as we expected earlier this year and this is impacting our ability to develop our products as fast as we would like.
Similarly, the wider supply chain issues have become even more challenging since August with even off the shelf components going out of stock with no notice and delivery for all orders lengthening.
For example, the lead time of one key component required for the XL Beta was recently forecasted to move from two to three weeks to 45, which we of course are working diligently to source from other vendors.
Fortunately, we have hired the right people to substantially improve our supply chain efforts, allowing us to become more agile and responsive to the situation with the result that our ability to source the necessary hardware, while still not as efficient as we would like it has improved over the past few months.
In summary, we've responded dynamically to mitigate the challenges associated with workforce and supply chain challenges.
We have welcomed new leaders focused on both supply chain and recruitment amongst 10, new team members hired since our merger with rotor was closed.
We have also grown our sales team, bringing in a new senior Vice president of sales quite substantial experience in sales to the types of industrial customers that represent our largest opportunities.
Expect to see us grow our sales team and ramp up our sales and marketing efforts substantially over the course of next year as we approach the commercial launch of our flagship products.
Once our initial baby units are complete and we are satisfied with their performance, we will manufacture more units for pilots by our prospective customers, which depending on pandemic related limitations. We currently expect will begin mid next year.
With successful product pilots that demonstrate the value proposition for our customers. We expect to then be able to start booking orders.
Following feedback from our beta tests and pilots, we will incorporate our learnings into the commercial product design, while simultaneously incorporating design for excellence principles.
And complete value engineering work to bring down the cost of production.
Despite the current staffing and supply chain challenges, we continue to expect to commence initial production of both the XO Mdx tea at the end of next year.
Over the past few months, we've revealed a number of significant milestones in the development of our product line.
In August we announced the collaboration with key mobile to integrate <unk> technology into the Guardian X T.
Five key integration could enable the X T to be operated remotely without reliance on our communications.
Which has the potential to materially expand the potential use cases for this groundbreaking product.
We continue to work closely with our partners in the military and EOG in the third quarter, we announced that several U S. Government agencies have purchased our guardian each are less heavy lift system. Our first of its kind human portable system able to with objects when 45000 pounds during asset recovery and emergency response missions.
Surplus has strong relationships with its defense customers are set to continue as we continually work to work closely with the Navy to develop our Guardian Dx product defense derivative of the Darden X T.
And longer term, we expect to continue our relationship with the Air Force Research Laboratory.
Advanced perception and sensing capabilities for our robotic systems.
Enabling us to move towards semi autonomous functionality.
While our primary focus remains the development of our flagship Guardian, XO and equity products.
Continued to repeat interest and the award winning Guardian S. A remote visual inspection robot, which was surfaces first commercial product.
In August we named pint environment, Environmental services and official distribution partner for the Guardian.
Finally regarding that's available through a rental program throughout the U S and Canada, which provides another channel through which customers can access this versatile mobile inspection robot.
Looking to the future I believe the success of our business is dependent on three primary factors.
The first of these is ensuring we have sufficient liquidity to develop our products and deliver them to market.
At the time of the initial announcement of our business combination.
We estimate it.
We estimated.
That we would need approximately $140 million of cash to develop the XO and XD and to bring them to market at scale.
While our labor costs and positive initial components, maybe somewhat higher than expected our merger transaction has given us ample liquidity to achieve our objectives.
The second factor relates to demand and customer adoption of these new categories, creating robotic systems.
Our view and that of many of our partners is that the current shortage of skilled workers is real and is only likely to get worse as the worker population in our target markets continue to age.
We believe strong demand for our XO and XP products exist today and will continue to increase going forward.
The final factor on which our success is dependent is our ability to develop and deploy products that meet the expectations and needs of our customers.
I believe that those of you who are viewed our demonstrations and purchase in person.
Watch the videos on our website or for those Lucky few have actually upgraded our alpha units understand that the key technical innovations required to meet our customers' needs are on track to be achieved based on the past 20 years plus.
R&D and one hundreds of millions of dollars that had been invested to date.
Now our focus is taking the feedback we received from our development partners and customers on our early prototypes.
And incorporating it into our beta units and ultimately our commercial products.
With that I would once again like to thank all the members start this team who have worked tirelessly this year to advance the development of our cutting edge dexterous mobile robot products complete our merger and manage our move into our new facility, which was completed this week and from which we are hosting this call today.
Thank you all once again for Washington Challenge with that I'll hand, the call over to Steve who will take you through our financials.
Thanks, Ben and good morning to everyone listening today.
As Ben said this is a very exciting time for <unk> and I'm very happy to share our first results as a public company with you today.
This morning, we reported third quarter 2021 revenue of $1 1 million down from $1 5 million in the corresponding period of 2020 for Sharpest Corp.
Driven by the timing of our product development contract revenue.
As surplus to develop its products and narrowed its focus to accepting only those development contracts that are fully aligned with our commercialization efforts. The company anticipates that development revenue may continue to be lower on a year over year basis during 2022.
The other component of our revenue product sales, which includes our Guardian.
Guardian, HOS and parts and accessories was up 69% to <unk> 4 million during the quarter of 2021 compared to the third quarter of 2020 <unk> Corp.
Our third quarter 2021, total operating expenses were $41 6 million up significantly from the third quarter of 2020, due primarily to a noncash stock based compensation expense, one time costs associated with the business combination and increased ongoing expenses associated with requirements of.
Being a publicly traded company.
As a result of these increased costs general and administrative expense increased from $2 million in the third quarter of 2020 for surface Corp to $33 9 million in the third quarter of this year, while sales and marketing expense rose to $2 3 million as compared to zero point $7 million for surplus Corp. During the same periods last year.
<unk>.
These expenses many of which are nonrecurring drove a third quarter GAAP net loss of 37 million or <unk> 35 per share diluted diluted per share, which is an increase from the <unk> core net loss of $6 9 million in the third quarter of 2020.
Excluding the nonrecurring expenses I just mentioned our non-GAAP net loss was $8 8 million fourth quarter.
Going forward, we anticipate that certain G&A and sales and marketing expenses will remain high in comparison to 2020 due to our stock compensation expense and the increased requirements of being a public company.
Because our warrants are accounted for as debt. We are required to report the change in value of our warrant liability on our statement of operations and comprehensive loss.
Since this liability is governed by the change in our stock price it will be difficult for us to forecast the effect of warrant accounting on our statement of operations and comprehensive loss, which may introduced volatility into our earnings each quarter until the warrants are fully expired or exercised.
Capital expenses year to date, our $2 1 million associated largely with the build out of our new facility, including the acquisition of computer equipment furniture and fixtures and other tenant improvements.
The fully diluted weighted average number of shares for the third quarter 2021 was $100 6 million.
Our outstanding share Count currently stands at $142 8 million as of today, resulting from shares issued in the merger with rotor and the pipe financing as well as some stock option exercises.
Turning to the balance sheet surplus as a healthy liquidity position.
At the end of the third quarter of 2021, our unrestricted cash and cash equivalents stood at more than $239 million up from just under $34 million for surplus Corp. At the end of 2020.
This cash increase is a result of the business combination with rotor and the pipe financing, which generated net proceeds after transaction expenses of $229 6 million.
As Ben mentioned, we believe the cash we have on hand today will be sufficient to enable us to bring our guardian, if so full body exoskeleton robot and our Guardian XP Tele operated robot scale to commercial production.
In April we announced the proposed business combination with rotor.
We released financial projections for the next five years forecasting our path to 43000 cumulative units in the field by the end of 2026.
As Ben mentioned earlier on the call because of the labor and supply chain headwinds. We discussed back in August we were forced to delay completion of our beta units and the commencement of initial commercial production by approximately six months to be clear. We continue to believe the long term projections are still valid, but the delay in the rollout of commercial units.
Of the Guardian, Nick fill in guarding next T announced in August affects the financial projections for 2022 and 2023.
At this time, we are still working through the impact of this rollout delay on our financial projections.
With that I too would like to join Ben and thank the entire Sarcos team for their hard work. This year, we are making significant progress on and on.
We're excited to continue to work to bring our cutting edge <unk> robotic products to market.
This concludes our prepared remarks, we will now open the line for questions.
Operator will you. Please instruct you give instructions out to ask questions.
Certainly.
As a reminder to ask a question you will need to press star one on your telephone to withdraw.
Your question press the pound key.
Stand by while we compile the Q&A roster one moment.
Our first question comes from.
Rob Mason of Baird. Please proceed.
Yes, good morning, and congratulations to getting to this point Ben and team.
I.
Wanted to know.
About the.
The beta trials and assembling the new features into into the model.
Does the all of the safety functionality.
That you plan for the unit does that get assembled during the beta process or is it.
Followed the beta process is.
And between that and commercialization I'm, just curious where those.
Those features get added as well.
Good morning, Robyn. Thanks for the question this is Ben.
The answer is both we are building a significant amount of safety functionality into the beta design.
But as we test the beta we will learn more about what additional enhancements that need to be built in if any between the beta version and the commercialization or the MTP product. So a significant amount of work is underway right now on the safety testing safety analysis and safety planning that is a big part of.
The work that is being done to get to the beta beta prototypes.
Actually yes.
Ben can you give us any feel for.
How many beta.
Customers may be enrolled right now or when you would start to enroll those.
So we do have some contracts.
Or beta pilots now we have others in negotiation I'm not going to give you a specific number because I can't tell you how many of those will actually come to fruition.
But we have we have strong interest right now I think it's fair to say, if we have beta units available today, when you're doing pilots today.
Okay.
What percent of those that you currently have we're also alpha.
Alpha trials customers.
I think our alpha trial customers and those that had been with us through the design development process for years are all still focused on the betas and we've obviously added more to the queue. Since the time of the Alpha. So it is it is a bit of both.
Okay fantastic.
Just a couple more real quick and.
What is your expectation in terms of how long the beta unit will reside at the at the customer what the trial period would be for for the XO for the XT I'm not sure if they would.
The extent they differ.
Any distinction there, yes, but beta period will likely be the same from what we're seeing from our customers on both the <unk> and the XP and were anticipating two to four weeks of each for each trial and then we will move that beta unit onto the next customers. So we can rotate.
As many as we can through and get as much information from different perspectives different use cases different industries as possible. We've had a couple of customers Express a desire for an extended beta period, meaning.
A couple or three months in duration.
And how we slot those in will be dependent on just where we are with Q and the magnitude of the opportunity.
I see.
Just last question maybe for Steve Steve.
Steve could you give us.
An idea of what the.
I'll, just say the cash operating expense run rate.
Recur on a recurring basis would be as we go forward and basically I'm trying to get a excluding stock compensation with the.
The operating expense run rate would look like.
You bet, so right now with our development our development focus we're running about $2 5 million burn right now cash until we get to that the beta trials and some of our projections for use of the customer.
Very good Okay, I'll hop back in the queue. Thanks for taking the question.
Thanks for your question Bob.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
One moment.
I show no further questions I would now like to turn the call back to Ben mimics for closing remarks.
Thank you Jamie that concludes our earnings call for the third quarter. If anyone has any questions. Please follow up with Investor Relations.
With that we'll say goodbye.
Okay.
This concludes today's conference call. Thank you for participating and you may now disconnect.
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