Q4 2021 Sarcos Technology and Robotics Corp Earnings Call

March 29, 2022

There will be a question and answer session.

Please be advised that today's conference is being recorded to ask a question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today than the Nic head of Investor Relations.

Please go ahead.

Thanks Danny.

Good afternoon, everyone and welcome to the <unk> fourth quarter and full year earnings call joining us on the call today, Osaka as President Chief Executive Officer, Keith <unk>, Chief Financial Officer, Steve Hoppe.

People will start the call with an overview of the fourth quarter and recent events and Steve will then talk in more detail about our financial results before we take questions from analysts.

Before we begin we must state for today's call will contain forward looking statements, including statements concerning future commercial availability of our products market trends revenues cost and liquidity.

In addition statements about our planned acquisition of R squared, including our expectations regarding the benefits to be achieved the financial performance of the combined company. The timing of the closing of the transaction future market will revenue opportunities integration plans and other statements regarding the combination of the two companies are forward looking statements.

These statements represent managements beliefs and expectations as to future events as of today, but there are many risks and uncertainties that could cause the actual results to differ from what we have projected among.

Among those risks and uncertainties that those described in our annual report on Form 10-K filed today with the SEC and those mentioned our earnings press release, and a press release announcing our planned acquisition of already split.

We encourage you to review the risks and.

Uncertainties described these press releases and in our filings with the SEC further information regarding these actual and potential risks and uncertainties.

Also encourage you to review the special note regarding forward looking statements included in our earnings release filed with the SEC. This afternoon.

10-K, both of which will be posted in the investors section of our website at <unk> Dot com and on the SEC's website.

In addition, we will be discussing certain non-GAAP financial measures today throughout this call all financial measures will be GAAP, unless otherwise noted a reconciliation of any non-GAAP measures to their most directly comparable GAAP measures as well as the description limitations and rationale for such measures are included in the earnings release filed with the SEC. This afternoon, which is available on.

On our website and on the SEC's website.

A recording of this call will also be archived on our website. The information that we're giving you on the call is as of today's date and we undertake no obligation to update the information subsequently.

Thanks again for joining us at this point I'd like to turn the call over 12, President and CEO keyboard.

Thanks, Ben and thank all of you for joining us today.

Exciting time for soccer on a personal note. This earnings call is Mike <unk>, President and CEO will start having completed 10 wells in December of last year, when he stepped into a new role as executive chairman, although I've only been CEO for a few months my involvement with Clarksons goes back much further.

Hey, Linda.

<unk> investment forecast I am impressed with the fact that its revolutionary technology.

Here's the atom on the graph.

Hum.

I'm delighted to be continuing my journey sarcastic.

Yes.

Leading our company on a path to commercial commercial release of our flagship robotic system with the first products ready for commercial production late this year.

This afternoon I'll update you on the current state of the business after that I will hand, the call over to our CFO , Steve Hanson, who will provide financial update on the company on the company before we end with taking questions from all of you.

Before I turn to the fourth quarter I first want to say how much.

How excited we are about welcoming square to the soccer family. Once the transaction closes. Many of you may be aware that yesterday, we announced that we had reached an agreement to acquire <unk> like Parkhouse square is a leader in the development of Tele.

Operator go panicked.

Primary focus.

On use cases and markets that Sarcos does not currently have.

For example, our esports SAPIEN range, a robotic arm are designed for use in subsea and medical applications to market market Park has not currently addressed today.

In addition to the expanding.

Expanding Starbucks as addressable market for its products will also allow us to offer our industrial military customers a wider range of potential solutions.

Our export product offered different listing capabilities dexterity manipulation price points, which we believe will create even better opportunity for new use cases to other human markers in ways that increased productivity.

<unk>.

Following the combination with Markwest product line.

<unk> flagship product.

Regarding Mexico, industrial exoskeleton, which is capable of lifting up to 200 pounds with little to no effort and makes it possible to improve worker efficiency by a multiple of two three or even more well, making workers safer at the same time until operating gardy.

<unk>.

On Avatar robot and one or two arms upper body robot, which melts on various mobile and web platforms, making it ideal for a wide variety of industrial applications, including tight overhead and ground level configuration that allows operators to carry out work in dangerous environments.

Or at high water on the ground Thats out of Harm's way the sapient range.

Robotic arms, which feature some of different models with capabilities ranging from precision for surgical application rugged outdoor arms for construction costs.

And the second C class system that can operate in shallow and deep water performance back to the maintenance tasks across multiple industries.

In addition to increasing the breadth of our product line. We believe this combination will strengthen us in a number of other ways.

Barcodes expects to benefit from revenue associated with.

Partnerships with the government and commercial customers, who are funding the development of a number of our esports advanced robotics system.

At a time when the competition for talented individuals' continues to be high our combination will also be an additional development locations Pittsburgh Copa.

Sure.

Key robotic development center in the country.

The transaction will enable us to combine the potential let's start with <unk> machine learning program with Orange or the computer vision.

AI software solutions that enable autonomy on their system. We believe that this work to bring up hanmi and unstructured environment has huge potential and that combining our two programs are a compelling opportunity to lead the industry in this effort.

Above all we believe the combination of <unk> will be a good cultural and commercial fit for both parties and purely financial and stock term. This may seem like a relatively small transaction based on modest stock dilution, but it's a big deal for us and in terms of technology team and market presence.

Believe the planned combination with <unk> has the potential to significantly increase our future revenue and profitability.

According to industry studies.

Both the subsea and medical markets alone are projected to grow at double digit CAGR in coming years, where it has a presence in both of those markets. We're delighted they agreed to join us.

Turning to our commercial turning to our commercialization efforts.

Sort of worker to perform physical paths and the challenge, we often hear about from our partners and potential customers.

And the challenge in addition to expanding <unk>.

Okay.

And the challenge is predicted to continue to grow for decades demographic change demographic changes are likely to continue to lower population rates with recent research suggests that almost 55 million job openings are expected. This decade in the U S alone most of them are.

Related to older workers in the workforce as a result.

<unk> focus on ways that technology can solve the labor shortage challenge a number of industry has some significant utilization of robotics solution.

But there are tens of thousands of jobs, particularly in unstructured environment, where automation is impossible or impractical per day and likely to be so far it is unlikely to be for the foreseeable future. This is the first DARPA Parker.

Our rank of robot that augment humans by combining intelligence scale of human workers with the strength and endurance of machine improving efficiency and keeping water space as we believe the future of skilled labor in the U S and mature economics economies around the world.

As we have discussed over the past year, our primary focus and the key milestones, which we believe investors should focus on has been on commencing initial production of commercial gap by the end of 2022, and the steps necessary to accomplish including successfully develop.

Development of beta versions of the Guardian Expo in the Guardian and <unk> products.

Achieved a notable milestone at the end of the fourth quarter. When we completed assembly at the first started debating that.

This beta unit is substantially more capable than the alpha version with substantially greater dexterity range of motion and strength in the east.

I'm delighted to be able to tell you that earlier. This month, we successfully completed a demonstration of the new equity for a government customer which was a key.

Contractual miles.

The customer was delighted with the progress and has indicated a desire to potentially beyond it.

The agreement and data set with that.

We are also making solid progress on the Guardian, so in the fourth quarter and a significant step towards Beitar economists operation effort. We successfully deployed developed and demonstrated an algorithm that enables the excess of balanced independently of a human operator. This is a key development milestone and given our safety protocols for DSO and earlier.

This year, we began testing an updated both body portion of exoskeleton, including adjustable rates, which will allow a more diverse range of uses to operate the robot, which is great for me because I am vertically challenged.

On our last call. We told you that we expected to have a fully assembled so beta units ready for testing in the first quarter of this year. However, since that call, we decided to collapse our interim development efforts in an effort to shorten the overall commercialization effort.

Doing more work upfront.

As part of the Ecmo data development effort, rather than complete the beta unit first and then talk to from the other.

Alright, and your issues such as moving from the spoke component to off the shelf parts. Our costs. Later. These decisions were made in large part due to the ongoing quite some challenges that we may we and many others continue to face as I mentioned earlier, we have assembled and are testing the key parts of the beta XL final assembly of the XO Beta unit is now.

Now expected to take place until later in 2022, but we remain on track to commence initial production of commercial units with both DSO and equity at the end of this year with customer testing and trials occurring products.

Yes.

Okay.

We mentioned on our last call that the hiring of people to fill technical work with the challenge. This is still the case candidate for physicians and the engineering and product high end demand and all tech companies are competing very hard for scarce talent.

Yeah.

This is why we're so pleased to move into our new headquarters and the greenery district of Salt Lake City in November of last year at more than 60000 square feet, our new headquarters.

More than twice the size of the facility that we outgrew and offer state of the art facility for the <unk>. The new facility has a dedicated test lab demonstrated space for customer use case validation and trial, but most importantly, it offers a collaborative work environment in a beautiful space first out constantly we are already seeing the benefits of moving into the building.

And the operating incident put into the new building and the opportunity to work.

In our new headquarters as a powerful recruiting tool.

Overall, we believe star.

That is dependent on three factors. The first of these have the first of these is having sufficient liquidity to bring a product to market. Thanks to the business combination. We closed last year. Dr. <unk> has a significant cost cash position and Steve will update you later in the call on our liquidity expectations for the rest of the year.

Second factor is whether we can develop the technology to meet our customer requirements.

As I've outlined today, we are committed to meeting our customer expectations and our key milestones on the <unk>.

Development of both DSO and <unk>, we continue to believe that initial production of our commercial units will commence by the end of this year.

The final factor explaining customers that our products provide the solutions that they need at the price point that provides unacceptable.

As I mentioned earlier in the call, we expect to spend out.

We send out our X gene X of beta units to customers for use in our operations. Later this year and we are confident that we will prove their worth in the real world trials. Overall. This is a very exciting time to be part of our costs as we look forward to closing our acquisition of Ari square and continue on the path to commercialization, we believe that robotics.

We will transform the industrial sector and that Stockless technology will be a fundamental part of that transformation I would like to conclude by thanking all the members of the surface team who've worked tirelessly through 2021 and into this year to continue the development of our product.

Our public listing and move up entirely new Fantastic headquarters. Thank you all for welcome you to the team over the past four months.

You are a great group and I'm delighted to be part of the team with that alternative Hampton to take you through the financial.

Thanks, Steve and good afternoon to everyone listening today.

First I'd like to take the opportunity to congratulate Keith on her first earnings call as.

As he just said this is indeed, a very exciting time for <unk> and I'm very happy She's on board.

I'd also like to join Keven expressing my excitement with regard to our planned acquisition of Ari squared. We believe the transaction will be accretive for sarcos, allowing us to benefit immediately from the are you square its commercial contracts and relationships.

As you are aware the transaction was only announced yesterday and it is not yet closed. Therefore at this time, we are unable to make any pro forma forecast.

As a result any guidance I gave in my prepared remarks will be for <unk> on a standalone basis and will not include any forecast for Ari squared.

On our next earnings call I anticipate updating guidance as a combined company basis.

This afternoon, we released our earnings and 10-K filing in which we reported full year 2021 revenue of $5 $1 million down.

Down from $8 8 million in 2020.

On a quarterly basis, we reported fourth quarter revenue of $1 million.

Down from $3 4 million in the last quarter of 2020.

This change in revenue was primarily due to a change in our work efforts for the various projects during the comparable periods and decision to focus only on projects fully aligned with our product commercialization efforts. This.

Change in work efforts resulted in a decline in research revenue for research and development services from $6 8 million to $3 6 million for the year.

As I mentioned on our last call. Our focus is now on meeting our commercialization timeline as.

As a result, we will continue to accept only those development contracts that will allow us to concentrate on our commercialization efforts and anticipate that development revenue may continue to be lower on a year over year basis during 2022.

The other revenue component sales of our products such as the Guardian S guarding the HOS and parts and accessories was $1 5 million for the full year of 2021, a decrease of a half million dollars compared to the previous year.

This decline was primarily related to lower sales of the Guardian NES offset in part by higher sales of the guarding HOS shelves.

Sales of these products are not expected to form a material part of our revenue once our flagship XO and <unk> products are available commercially.

Full year 2021, operating expenses were $86 1 million up significantly from $29 8 million in 2020 for.

For the fourth quarter total operating expense was up by 21 4 million to $28 7 million.

The majority of our operating expense increase in 2021 was due to an increase in stock based compensation expense primarily attributed to a one time equity award in March of 2021, which drove the significant majority of the increase in general and administrative expense from $7 3 million in 2020 to $58 1 million in 2021.

Don.

In addition, the public listing of our stock has driven an increase in professional fees and several areas required to ensure compliance with listing rules and securities laws as well as other public to public company related expenses, such as D&O insurance premiums.

Sales and marketing expenses were also higher on a year over year basis, increasing from $2 8 million in 2020 to $6 6 million for the full year of 2021.

Much of this increase was due to the engagement of professional services to a third party vendor stock based compensation and increased marketing activities to.

The same causes also drove an increase in sales and marketing expense for the fourth quarter of $1 7 million.

We incurred additional expense from an increase in engineering production and supply chain head count to prepare for the commercial production of our products and we expect these expenses as well as general and administrative and sales and marketing expenses to be higher year over year for the remainder of 2022.

These expenses drove our full year 2021, GAAP net loss of $81 $5 million or <unk> 72 per diluted share compared to the net loss of $20 9 million or <unk> 21 per diluted share in the previous year.

On a quarterly basis fourth quarter 2021, GAAP net loss was $34 1 million or <unk> 25 per diluted share an increase of $3 9 million or <unk> <unk> per diluted share in the same period of 2020.

As I mentioned on our last call. Some of our warrants are accounted for as debt and we are required to report the change in value of this warrant liability on our statement of operations and comprehensive loss.

Since changes in the value of this liability are driven by changes in our stock price it will be difficult for us to forecast the effect of the warrant accounting on our statement of operations and comprehensive loss as this introduces unpredictable volatility into our earnings each quarter until the <unk> are fully exercised or expired.

Excluding stock based compensation expense warrant liability and certain other items, our non-GAAP net loss for 2021 was 31.

For the fourth quarter, our non-GAAP net loss was 11.

As a reminder for a description of how we calculate non-GAAP net loss and a reconciliation to GAAP net loss. Please see our earnings release.

Capital expenditures for 2021 were $4 7 million incurred primarily due to construction work to prepare our new headquarters, including the purchase of fixtures and other tenant improvements.

The fully diluted weighted average number of shares for the fourth quarter of 2021 was $137 7 million our outstanding share Count currently stands at $142 8 million shares as of today, including shares issued in the business combination with rotor and the pipe financing as well as certain stock option exercises and settlement of <unk>.

Issues.

Based on a fully diluted share count of $231 2 million shares which includes potential earn out shares dilution. Upon the successful closure of the acquisition of Ari squared will be approximately five 7% based on the lower end of the collar, which we believe represents excellent value based on the benefits that we expect to Ria.

<unk> for the transaction.

As a result of the business combination last year circles as a healthy liquidity position.

At the end of 2021, our unrestricted cash and cash equivalents stood at more than $217 million.

Just under $34 million at the end of 2020.

We continue to believe that the cash we have on hand today will be easily sufficient to enable us to bring our guardian XO full body exoskeleton robot and regarding next T. Taylor operated robot to initial production for our commercial units.

As Steven mentioned in our remarks, Theres a lot of focus on our liquidity positions liquidity position the companies like Sarcos core developing innovative products to bring to market.

Therefore, we believe it will be helpful to forecast our cash burn for the rest of the year.

Our cash used in operating activities in 2021 was $42 1 million or an average cash burn of approximately $3 $5 million a month.

Due to the increase in expenses I outlined earlier, including the additional investments we are making to develop our commercial units.

Dissipate that our average monthly cash burn from operational and cash capital expenditures will increase to $5 5 million for 2022.

This number is likely to be more heavily weighted towards the latter months of the year as we scale up our operations towards the commercial release of our products.

In addition, we estimated cash impact averaging approximately $1 million a month for the purchase of stock satisfy certain tax obligations on the vesting of employee stock Awards.

As a reminder, these projections do not take into account the planned acquisition of R squared, including the cash consideration of the transaction and any additional cash.

Burn related to the already squares operations.

However, we do not expect the acquisition of R. Squared will have material effect on our near term operating cash burn and longer term. We believe the acquisition will accelerate our path to positive free cash flow by a quarter.

With that I would like to join Kiva and thinking that entire circles team for the hard work they've done. This past year, we are making excellent progress and we're excited to bring our technology to market.

This concludes our prepared remarks, we will now open the line for questions.

<unk> will you please repeat the instructions to ask a question.

Certainly as a reminder.

To ask a question you will need to press star one on your telephone.

Draw your question press the pound key please standby, while we compile the Q&A roster.

Okay.

Our first question comes from John Walsh of Credit Suisse. Please proceed.

Hi, good afternoon.

Welcome to you Kiva.

Thanks, John .

I guess, maybe the first question.

As we think about.

Commercialization.

In 2023.

Can you help us understand.

Maybe first just do you expect to see both the XO and <unk> kind of go out around the same time or might one.

Go out before the other and then do you have any help on how to think about either from a revenue or a units perspective your ability to ramp.

Those programs from a capacity standpoint.

Yes, great great Great question so.

On track to deliver commercial units.

By the end of the year and.

What I'd say.

Both are on track around the same time as far as scale.

Volume growth, we've invested a lot this year both on the human capital side and then obviously on the factory side. So we've brought in a very very talented leadership team member of my team. So the head of supply chain now reports directly to me.

The head of production. So we've got line of sight to be able to produce up to 500 units on site here and Thats, what the team is targeting towards.

Great.

And then maybe a question around cash burn realize you haven't closed yet, but I guess so.

The questions just thinking about the release yesterday around Ari is youre, obviously, adding.

A good amount of head count.

Without any associated impact to the cash burn so just any more color that you can provide around that obviously, realizing the transaction hasnt closed yet.

Yes, John Let me, let me kind of answer that for you.

First of all.

Still evaluating the full impact of transactions on our future financial performance.

As we know already squared had revenue of approximately $15 million in 2021, but what we hope to achieve as both revenue and cost synergies as we leverage the technology and resources across the two companies. So the exact extent of that synergy and hard it's really hard to predict at this point, but it is subject to risks and uncertainties as you might imagine but.

We expected that to be neutral to our bottom line at this point and we expect to just continue with our path we projected prior to the acquisition.

Great and then maybe if I could just sneak one more housekeeping question and I.

I think you said the stock dilution was five 7% I just want to make sure I understand the base were taking that off of I think youre ending share count was like $142 nine.

What we should do the math off just so that we're all level set on.

Whats the right share count number as Youre trying to help us get to.

Now that's a fair point I think what we did is when we took a look at the full value of all of our shift potentially on the market, including the earn out shares.

And the unrealized.

Distribution of our shares or options stock plans, we put that total number at $231 2 million shares approximately out there is full amount of diluted shares in the market and we mapped that against the <unk> shares and the deal at the low end of the collar and that gave us the five 7%.

Dilution fact.

Great.

I'll pass it along could keep going but really appreciate you taking the questions and.

Look forward to success on the commercialization. Thank you.

Thank you John Thanks, John .

Yeah.

Thank you. Our next question comes from Joseph Donahue of Baird. Please proceed.

Hey, guys can you hear me.

We can yes alright.

Alright, cool, yes im on for Rob.

Thanks for taking the question so actually I'll start with the customer trials have you opened reservations or are they filled and beyond that can you kind of talk about how youre looking to help customers speed things from a sales and adoption perspective.

Yes, Scott.

From a.

Channel perspective, we had our ex Tac team here last week and some of our key customers.

One of the things that Super exciting about this rollout every single time.

<unk> Kutter discovery sessions were out an entire Mac or were on the factory floor.

There is another Ah ha moment so.

We had one this week with regard to Neil Lightning on the tarmac and can't get a human out but you can get it.

Operator next T out there are no problem, so really good progress on the pipeline and really good progress on scheduling the trials with the different potential customers. So pipeline is definitely filling up.

Okay, that's great to hear.

Kind of on the manufacturing one housekeeping one further out thing.

500 units in fact, XO and XP and then afterwards are you still planning on using a contract manufacturer.

Yes.

One is we arent currently.

In the process of evaluating different contract manufacturing options and right now we're looking at between three and 500 units out of the facility here depending upon what the mix is so to answer your question. It is it will be so depending upon what we see as far as orders come in that will really shift the total number of units.

They can produce but also includes our HL SMT units so again.

We don't know what the mix is going to look like that will be a mix of call. It the time.

Okay Cool and then one last question on the RF Great acquisition.

You talk about are there different industries or applications that the SAPIEN XT would be better for I mean, obviously, you subsea but.

Industrial use how are you going to define what your product is better if you did the customer kind of look through the portfolio and decide.

Yes, I think the beautiful part.

The transaction is the products are very complementary. So we'll now have a full stack of products. So depending upon what the task is at hand, if you need deliberate need to lift the cap rate will be able to look at our products the upsell and the equity if you need more agility or you need a clean room, then would you lean into the <unk>.

<unk>, where are our <unk> app. So I think it's a nice complement across the board. It will also create a lot of optionality for the customers. So that they can have a single partner that can provide them with both heavy lift in lately.

Got it Oh wait one more sorry could you provide any idea of the Rd squared sales run rate unit dollar whatever you have.

Yeah.

I should have been closed.

Still information.

Alright.

No problem. Thanks, so much I'll pass it on.

Thank you I would now like to turn the conference back to management for final remarks.

Thank you Didi we are.

Super excited about where we are.

Find ourselves today surfaces in a position to revolutionize the industrial labor force by developing robots to create the most cost.

Cost effective workforce in the world, we're proud of our mission and looking forward to keeping you up to date on our progress and thank you for your time and your interest and please.

I don't know if you have any additional questions.

This concludes today's conference call. Thank you for participating and you may now disconnect.

[music].

Good day and thank you for standing by welcome to the Q4, 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 is being recorded.

I ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today than the Nic head of Investor Relations. Please go ahead.

Thanks <unk> good.

Good afternoon, everyone and welcome to the soft because fourth quarter and full year earnings call joining us on the call today, Osaka as President and Chief Executive Officer, Keith <unk>, Our Chief Financial Officer, Steve Hoppe.

We'll start the call with an overview of the fourth quarter and recent events and Steve will then talk in more detail about our financial results before we take questions from analysts.

In addition statements about our planned acquisition of R squared, including our expectations regarding the benefits to be achieved the financial performance of the combined company. The timing of the closing of the transaction feature market will revenue opportunities integration plans and other statements regarding the combination of the two companies are forward looking statements.

Among those risks and uncertainties, although as described in our annual report on Form 10-K filed today with the SEC and those mentioned in our earnings press release, and a press release announcing our planned acquisition of <unk>.

We encourage you to review the risks and uncertainties.

Uncertainties described these press releases and in our filings with the SEC further information regarding these actual or potential risks and uncertainties.

We also encourage you to review the special note regarding forward looking statements included in our earnings release filed with the SEC. This afternoon and in our 10-K, both of which will be posted in the investors section of our website <unk> com and on the SEC's website.

And on the SEC's website.

Thanks again for joining us at this point I'd like to turn the call over to our president and CEO keyboard.

Thanks, Ben and thank all of you for joining us today.

Very exciting time for soccer on a personal note. This earnings call is my first as president and CEO of circa haven't succeeded 10 work in the summer of last year when he stepped into a new role as executive chairman, although I've only been CEO for a few months my involvement in the surplus goes back much Bert.

Hey, Mike.

Lindsay investment forecast I am impressed with the fact that its revolutionary technology My enthusiasm has only grown.

I'm delighted to be continuing my journey with Barcodes as president and CEO .

Meeting our company on a path to commercial commercial release of our flagship robotic system, but the first products ready for commercial production late this year.

This afternoon I'll update you on the current state of the business after that I'll hand, the call over to our CFO , Steve Hanson, who will provide financial update on the company on the company before we end with taking questions from all of you before.

Before I turn to the fourth quarter I first want to say how much.

How excited we are about welcoming square to the soccer family. Once the transaction closes. Many of you may be aware that yesterday, we announced we had reached an agreement to acquire our esport like Marcos I squared as a leader in the development of Tele operated robotic system with a primary focus.

On use cases and markets that Sarcos does not currently have products for.

For example, our esports APN range of robotic arms are designed for use in subsea and medical applications to market market, but park is not currently addressed today.

Yeah.

Okay.

In addition to the expanding.

Expanding the addressable market for its products will also allow us to offer our industrial military customers a wider range of potential solutions, because our export product offered different lifting capabilities dexterity manipulation price points, which we believe will create even better opportunity for new use cases to augment human work.

In ways that increase productivity and enhance safety following the combination with <unk> product line.

<unk> flagship product.

<unk>.

On advertising robot, a one or two arms upper body robot, which amounts on various mobile and web platforms, making it ideal for a wide variety of industrial applications and cleaning up tight overhead and ground level configuration. It allows operators to carry out work in dangerous environments.

Or at height water ammonia on the ground out of Harm's way the safety at range.

Robotic arms, which features several different models with capabilities ranging from precision arms for surgical applications.

At outdoor arms for construction tasks.

And the second C class system that can operate in shallow and deepwater performance back to the maintenance test across multiple industries.

In addition to increasing the breadth of our product line. We believe this combination will strengthen us in a number of other ways.

Perfect.

The benefit from revenue associated with our work.

Partnerships with the government and commercial customers, who are funding the development of a number of our esports advanced robotics system.

At a time when the competition for talented individuals' continues to be high in combination will also be an additional development locations Pittsburgh robotics.

Key robotic development center in the country financed the transaction will enable us to combine the potential start of sites or machine learning program like ours or detect computer vision.

<unk> AI software solutions that enable autonomy on their system. We believe that this work to bring up hanmi and unstructured environment has huge potential and that combining our two programs are a compelling opportunity to lead the industry.

Sure.

Above all we believe the combination of purpose of Rd square will be a good cultural and commercial fit for both parties and purely financial and stock term. This may seem like a relatively small transaction based on the modest stock dilution, but it's a big deal for us in terms of technology team and market presence.

Delete the planned combination with RIS spread has the potential to significantly increase our future revenue and profitability. According to industry studies.

The subsidy and medical markets alone are projected to grow at double digit CAGR in coming years, where it has a presence in both of those markets. We're delighted that they agreed to join us.

Turning to our commercial turning to our commercialization efforts, a sort of worker to perform physical paths and the challenge, we often hear about from our partners and potential customers.

And the challenge in addition to expanding surpluses.

Okay.

And the challenge is as predicted dependent continue to grow for decades demographic change demographic changes are likely to continue to lower population rates with recent research, suggesting almost $55 million job openings are expected. This decade in the U S alone most of them are related to older one.

Or it can be when the workforce as a result, there is an increasing focus on ways that technology can solve a labor shortage challenge.

Number of industries has been significant utilization of robotics solution.

Both of these issues.

But there are tens of thousands of jobs, particularly in unstructured environment, where automation is impossible or impractical today and likely to be so far.

Likely to be for the foreseeable future. This is the worst start.

Some of them.

Our range of robot that augment human like money intelligently scale of human worker with the strength and endurance of machine improving efficiency and keeping workers safe is we believe the future of skilled labor in the U S and mature economics economies around the world as.

As we have discussed over the past year, our primary focus and.

And the key milestones, which we believe investors should focus on has been on commencing initial production of commercial units by the end of 2022.

Necessary to accomplish including successfully develop development of beta versions of our Guardian Expo and regarding NFC products. We achieved a notable milestone at the end of the fourth quarter. When we completed assembly at the first starting XD bdnf.

This better unit substantially more capable than the alpha version with substantially greater dexterity range of motion strength and the ease of use I'm delighted to be able to tell you that earlier. This month, we successfully completed a demonstration of the new equity for a government customer which was a key.

Contractual miles.

The customer was delighted with the progress and has indicated a desire to substantially and this agreement and data set with that.

We're also making solid progress on the Guardian, so in the fourth quarter and a significant step towards byproduct Panama operation effort, we successfully deploy developed and demonstrated an algorithm that enabled the XO to balance independently of a human operator. This is a key development milestones and meeting our safety protocols for DSO in earlier.

This year, we began testing an updated mineral body portion of asset sales and including adjustable legs, which will allow a more diverse range of uses to operate the robot, which is a great for me because I am vertically challenged on our last call. We told you that we expected to have a fully assembled associate on units ready for testing in the first quarter of this year How's.

However, since that call, we decided to collapse our interest development effort in an effort to shorten the overall commercialization effort.

Doing more work upfront.

As part of the at both data development effort rather than complete the beta unit first and then tackling some of the other.

Boehringer issues, such as moving from bespoke component to off the shelf parts our costs later.

These decisions were made in large part due to the ongoing supply chain challenges that we may we and many others continue to face as I mentioned earlier, we have assembled and are testing the key parts of the day. The XO final assembly in the excavator unit is now.

That didn't take place until later in 2022, but we remain on track to commence initial production of commercial units with both DSO and ft.

At the end of this year with customer testing and trials occurring.

Yes.

Okay.

We mentioned on our last call with the hiring of people to fill technical work with the challenge. This is still the case candidates are physicians and the engineering and product, but high end demand in all tech companies are competing very hard for scarce talent.

This is why we're so pleased to move into our new headquarters in the <unk> District of Salt Lake City in November of last year at more than 60000 square feet, our new headquarters.

That's more than twice the size of the facility that we outgrew and offer state of the art facility for the <unk>. The new facility has a dedicated test lab demonstrate good space for customer use case validation and trial, but most importantly, it offers a collaborative work environment in a beautiful space for sale constantly we are already seeing the benefits of moving into the bill.

<unk> and the operating.

And to put into the new building and the opportunity to work.

In our new headquarters as a powerful recruiting tool.

Overall, we can restart those.

<unk> is dependent on three factors.

<unk> have the first of these is having sufficient liquidity to bring our products to market. Thanks to the business combination. We closed last year. Dr. <unk> has a significant cost to cash position and Steve will update you later in the call on our liquidity expectations for the rest of the year.

Second factor is whether we can develop the technology to meet our customer requirements.

Today, we are committed to meeting our customer expectations and our key milestones on the development of both the Akzo and X gene.

We need to believe that initial production of our commercial units will commence by the end of this year.

The final factor trading customers that our products provide the solutions that they need at the price point that provides unacceptable.

Roy as I mentioned earlier in the call, we expect to spend out.

Send out our X gene extra beta units to customers for use in our operations later this year and we're confident that we will prove their worth in the real world trials. Overall. This is a very exciting time to be part of sort of as you look forward to closing our acquisition of artwork and continue on the path to commercialization, we believe that robotics.

We will transform the industrial sector and Thats Stockless technology will be a fundamental part of that transformation I would like to conclude by thanking all the members of the Cypress team, who worked tirelessly through 2021 and into this year to continue the development of our product complete our public listing in move up and from new Fantastic headquarters.

Thank you all for welcome you to the team over the past format.

You are a great group and I'm delighted to be part of a team with that I'll turn it over to Steve Hansen to take you through the financial.

Thanks, Peter and good afternoon to everyone listening today first I'd like to take the opportunity to congratulate Keith on her first earnings call.

As he just said this is indeed, a very exciting time for <unk> and I'm very happy She's on board.

As you are aware the transaction was only announced yesterday and has not yet closed. Therefore at this time, we are unable to make any pro forma forecast.

As a result any guidance I gave in my prepared remarks will be <unk> on a standalone basis and will not include any forecast for Ari squared.

On our next earnings call I anticipate updating guidance as a combined company basis.

This afternoon, we released our earnings and 10-K filing in which we reported full year 2021 revenue of $5 1 million down from $8 8 million in 2020.

On a quarterly basis, we reported fourth quarter revenue of $1 million down.

Down from $3 4 million in the last quarter of 2020.

This change in work efforts resulted in a decline in our research revenue for research and development services from $6 8 million to $3 6 million for the year.

As I mentioned on our last call. Our focus is now on meeting our commercialization timeline.

The other revenue component sales of our products such as the Guardian Guardian, HOS and parts and accessories was $1 $5 million for the full year of 2021, a decrease of about $5 million compared to the previous year.

This decline was primarily related to lower sales of the Guardian NES offset in part by higher sales of the Guardian HOS.

Sales of these products are not expected to form a material part of our revenue once our flagship XO and <unk> products are available commercially.

Full year 2021, operating expenses were $86 1 million up significantly from $29 8 million in 2020 for.

For the fourth quarter total operating expense was up by 21 4 million to $28 7 million.

Don.

Sales and marketing expenses were also higher on a year over year basis, increasing from $2 8 million in 2020 to $6 6 million for the full year of 2021.

Of this increase was due to the engagement of professional services to a third party vendor stock based compensation and increased marketing activities.

The same causes also drove an increase in sales and marketing expense for the fourth quarter of $1 7 million.

These expenses drove our full year 2021, GAAP net loss of $81 $5 million or <unk> 72 per diluted share compared to the net loss of $20 9 million or <unk> 21 per diluted share in the previous year.

On a quarterly basis fourth quarter 2021, GAAP net loss was $34 1 million or <unk> 25 per diluted share an increase of $3 9 million or <unk> <unk> per diluted share in the same period of 2020.

Excluding stock based compensation expense warrant liability and certain other items, our non-GAAP net loss for 2021 was 31.

For the fourth quarter, our non-GAAP net loss was 11.

As a reminder for a description of how we calculate non-GAAP net loss and a reconciliation to GAAP net loss. Please see our earnings release.

Capital expenditures for 2021 were $4 7 million incurred primarily due to construction work to prepare our new headquarters, including the purchase of fixtures and other tenant improvements.

Issues.

Based on a fully diluted share count of $231 2 million shares which includes potential earn out shares dilution. Upon the successful closure of the acquisition of Ari squared will be approximately five 7% based on the lower end of the color, which we believe represents excellent value based on the benefits that we expect to Ria.

<unk> for the transaction.

As a result of the business combination last year Sarcos has a healthy liquidity position.

At the end of 2021, our unrestricted cash and cash equivalents stood at more than $217 million.

Under $34 million at the end of 2020.

We continue to believe that the cash we have on hand today will be easily sufficient to enable us to bring our guardian XO full body exoskeleton robot and regarding next T. Til are operated robot to initial production for our commercial units.

As Keith mentioned in our remarks, there is a lot of focus on our liquidity position liquidity position the companies like Sarcos core developing innovative products to bring to market.

Therefore, we believe it will be helpful to forecast our cash burn for the rest of the year.

Our cash used in operating activities in 2021 was $42 1 million or an average cash burn of approximately $3 $5 million a month.

Due to the increase in expenses I outlined earlier, including the additional investments we are making to develop our commercial units.

Dissipate that our average monthly cash burn from operational and cash expense capital expenditures will increase to $5 5 million for 2022 <unk>.

This number is likely to be more heavily weighted towards the latter months of the year as we scale up our operations towards the commercial release of our products.

In addition, we estimated cash impact averaging approximately $1 million a month for the purchase of <unk> stock satisfies certain tax obligations on the vesting of employee stock Awards.

As a reminder, these projections do not take into account the planned acquisition of R squared, including the cash consideration of the transaction and any additional cash.

Burn related to the already squares operations.

With that I would like to join Kiva and thinking the entire circles team for the hard work they've done this past year, we are making excellent progress and we're excited to bring our technologies to market.

This concludes our prepared remarks, we will now open the line for questions.

<unk> will you please repeat the instructions to ask a question.

Certainly as a reminder to ask a question you will need to press star one on your telephone.

To all your question press the pound key please standby, while we can pile the Q&A roster.

Yeah.

Our first question comes from John Walsh of Credit Suisse. Please proceed.

Hi, good afternoon, and welcome to Kiva.

Thanks, John .

I guess, maybe the first question as.

As we think about.

Commercialization.

In 2023.

Can you help us understand.

Maybe first just do you expect to see both the XO and the <unk> kind of go out around the same time or might one.

Out before the other and then do you have any help on how to think about either from a revenue or a units perspective your ability to ramp.

Those programs from a capacity standpoint.

Yes, great great Great question. So we're on track to deliver commercial units.

By the end of the year and.

What I'd say.

Both are on track around the same time as far as scale and volume growth.

<unk> invested a lot this year both on the human capital side, and then obviously on the factory side, we brought in a very very talented leadership team member of my team. So the head of supply chain now reports directly to me.

The head of production. So we've got line of sight to be able to produce up to 500 units on site here and that's what the team is targeting towards.

Great.

And then maybe a question around cash burn realize you haven't closed yet, but I guess one of the questions just thinking about the release yesterday around Ari is youre, obviously, adding.

A good amount of head count.

Without any associated impact to the cash burn so just.

Any more color that you can provide around that obviously, realizing the transaction hasnt closed yet.

Yes, John Let me, let me kind of answer that for you.

First of all.

Still evaluating the full impact of the transactions on our future financial performance.

It's really hard to predict at this point, but it is subject to risks and uncertainties as you might imagine but.

We expected that to be neutral to our bottom line at this point, we expect to just continue with our path.

Prior to the acquisition.

Great and then maybe if I could just sneak one more housekeeping question.

You said the stock dilution was five 7% I just want to make sure I understand the base were taking that off of I think youre ending share count was like $1 42, nine is that what we should do the math off just so that we're all level set on what.

Whats the right share count number is you're trying to help us get to.

Now that's a fair point I think what we did is when we took a look at the full value of all of our shift potentially on the market, including the earn out shares.

And the unrealized.

Distribution of our shares and our option in stock plans, we put that total number at $231 2 million shares approximately out there is approval amount of diluted shares in the market and we mapped that against the <unk> shares and the deal at the low end of the collar and that gave us the five 7%.

Our dilution factor.

Great.

I'll pass it along could keep going but really appreciate you taking the questions and.

Look forward to success on the commercialization. Thank you.

Thank you John Thanks, John .

Thank you. Our next question comes from Joseph Donahue of Baird. Please proceed.

Hey, guys can you hear me.

We can yes.

Alright cool im on for Rob.

Thanks for taking the question so actually I'll start with a couple of our trials have you opened throughout their patients or are they filled and beyond that can you kind of talk about how you are looking to help customers speed things from a sales and adoption perspective.

Yes.

From a.

Channel perspective, we had our ex Tac team here last week and some of our key customers.

One of the things that Super exciting about this rollout every single time.

<unk> customer discovery sessions were out an entire Mac or were on the factory floor.

There is another aha moment so.

We had one this week with regard to Neil Lightning on the tarmac and can't get a human out but you can get it.

Okay, that's great to hear.

On the manufacturing one housekeeping one further thing.

The 500 units inside XO and XP and then afterwards are you still planning on using a contract manufacturer.

Yeah. So the plan is we arent currently.

In the process of evaluating different contract manufacturing options.

And right now we're looking at between three and 500 units out of the facility here, depending upon what the mix is so to answer your question. It is it will be depend.

Depending upon what we see as far as orders come in that will really shift. The total number of units. We can produce that also includes our HOS Mcs units. So again.

Don't know what the full mix is going to look like but it'll be a mix of all of the time.

Okay Cool and then one last question on the RF Great acquisition could.

Could you talk about are there different industries or applications that even the SAPIEN XT would be better for I mean, obviously, you subsea, but if there's an industrial use how are you going to decide which product is better. If you did already just going off the cuff.

<unk> kind of looked at the portfolio and decide.

Yes, I think the beautiful part.

With the transaction as the products are very complementary. So we'll now have a full stack of products. So depending upon what the task is at hand, if you need deliberate need to lift the cap rate will be able to look at our product, but the upsell and the equity if you need more agility or you need a clean room, then would you lean into the <unk>.

<unk>, where are you are a app. So I think it's a nice complement across the board. It will also create a lot of optionality for the customers. So that they can have a single partner that can provide them with those heavy lift in lately.

It Oh wait one more sorry could you provide any idea of the R&D squared sales run rate unit dollar whatever you have.

Yeah, we had the transaction hasn't closed and Thats that.

Still information.

Sorry.

No problem. Thanks, so much I'll pass it on.

Thank you I would now like to turn the conference back to management for final remarks.

Thank you Didi.

We're excited about where we find ourselves today. It's our first is in a position to revolutionize the industrial labor force by developing robots to create the most cost.

Cost effective workforce in the World. We are proud of our mission and looking forward to keeping you up to date on our progress. So thank you for your time and your interest and please let us.

No if you have any additional questions.

This concludes today's conference call. Thank you for participating and you may now disconnect.

Q4 2021 Sarcos Technology and Robotics Corp Earnings Call

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