Q1 2022 Sarcos Technology and Robotics Corp Earnings Call

May 11, 2022

Good day and thank you for standing by welcome to the first quarter 2022 circles Technology and Robotics Corporation earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

If you require assistance during the conference. Please press Star Zero I would now like to hand, the conference over to your speaker today, <unk> <unk> head of Investor Relations.

Thanks Andrea.

Good afternoon, everyone and welcome to the <unk> first quarter earnings call.

Joining us on the call. This morning are <unk>, President and Chief Executive Officer, Kiva, Allgood, and Chief Financial Officer, Steve Hansen.

People will start the call with an overview of the first 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 that 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, any statements about future performance related to our acquisition of <unk>, including our expectations regarding the benefits to be achieved the financial performance of the combined company future Mark.

It'll 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 those risks and uncertainties are those described in our quarterly report on Form 10-Q filed today with the SEC and those mentioned in today's earnings press release, and our press release announcing the closure of our acquisition of <unk>.

We encourage you to review the risks and uncertainties described in these press releases and in our filings with the SEC for further information regarding these actual and potential risks and uncertainties. We also encourage you to review the special note regarding forward looking statements included in our earnings release and 10-Q for the first quarter of 2022, and each case filed with the SEC. This afternoon, which will be posted in the investor.

One of our web site at <unk> Dot com and on the SEC's website.

In addition, we will be discussing certain non-GAAP financial measures on our call 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 our website and on the SEC.

Web site a.

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 so thanks again for joining us at this point I'd like to turn the call over to our President and CEO Kiva Allgood.

Thanks, Dan we appreciate everyone joining us today. This afternoon I will update you on the first quarter of the year and our expectations for the rest of 2022 after that I will hand, the call over to Steve Hansen, Our CFO , who will give you a financial update on the company and then we will open it up for calls.

Question.

Due to the final calendar. This call comes only six weeks after our last earnings call, but despite the brief time between call. It. The team has managed to achieve a great deal since our last update as many of you are aware we closed the acquisition of Ari squared on April 25, the ice where our team is now part of forecast or a square.

<unk> founder and CEO , Doug and Patterson is now the Chief operating Officer Marcos and we have started the process of integrating two teams into one combined team. We're executing an aggressive people first integration plan that started with joint Onboarding and training sessions in both locations and the cross pollination of teams at both sites.

And I remain confident that the combined <unk> team has a strong commercial and cultural fit and I believe the combination will have a positive impact on our employees stakeholders and customers.

Combination of the products people and performance metrics are where I'll focus on that.

We now have a broader product portfolio, both sarcos and Ari squared are leaders in the development of Tele operated robotics, and we believe our complementary products will allow us to realize significant value from the acquisition R. Squared sapient product line of robotic arm work in markets that sockets products are not currently designed to address.

And therefore widening the potential Tam of our combined product roadmap and allowing us to offer a broader range of solutions to both commercial and government customers.

<unk> safety product offered different tax 30 manipulation lifting capacity and price points than the Guardian products, all the new capabilities allow us to deliver on our unified mission to increase worker productivity longevity and prevent injuries through robot.

Our <unk> acquisition enables us to combine two teams of engineers technicians and developers, which we believe includes some of the world's leading experts in human augmented robotics and supervised autonomy.

There is a war for technical talent, especially and especially in specialized skills like robotics, and we are delighted to be able to combine <unk> with more than 100 team members with a surplus of 160 team members. These team members collectively have over 50 years of designing building and perfecting robotic systems and I have already witnessed.

Power of bringing these two teams together with our first technical deep dive. We now have two locations Pittsburgh in Salt Lake City, which will allow us to offer employees and new hires a choice of locations and capitalize on the robotics ecosystem and the use of robotics capital hits.

Pittsburgh.

To deliver on our mission, we need to execute to our product deliverables and key performance metrics and I will provide an update on our combined roadmap later in the call, but first I'd like to be helpful to set out our product line stands following the RV squared acquisition I'll start with the Guardian product line, our Guardian XO industrial exoskeleton is capable.

Both lifting up to 200 pounds with little to no human effort and depending on the use case, we can improve worker productivity by a multiple of two three or even more while simultaneously making employees safer.

The second core product the Tele operated Guardian, XD, a one or two arm upper body robot, which can be mounted on a variety of lyft platforms and mobile basis, making it ideal for a wide scope of industrial applications, including at height overhead ground level configurations like sapient robots. The Guardian XT allows operators to perform work in <unk>.

Interest environment at a height at heights, while the operator remains out of Harm's way.

The CPM product family of robotic arms developed by our ice squared has several models, which range from 4% to seven degrees of freedom of movement and have different weights ranging from under 30 pounds to over 400 pounds, depending on the environment and the application.

Sapient arm can be used in a single or dual mode combined with the <unk> Division autonomy software is able to undertake work in the medical construction aviation.

Industry is amongst others, keeping workers safe also keeping workers safe and improving productivity.

In addition, the SAPIEN C class variant can be tele operated in both shallow and deepwater environments to complete a number of inspection and maintenance tasks across multiple industries.

Yes.

Second we expect to benefit from revenues associated with our esports partnership with the government and commercial customers, who are funding the development of a number of our esports advanced robotic system. During the first quarter ice squared announce a development partnership with J LG industries to focus on integrating at sapient arm technology and <unk> access equipment.

Also in Q1, the Sapient C class successfully achieved an unprecedented steps milestone of one kilometer during an open wire demonstration with.

It's maritime mine Mutualization system known as <unk>.

For the U S. Navy's office of Naval Research, who is sponsoring the projects. We look forward to sharing more exciting news about the sapient portfolio very soon.

Finally, the transaction will enable us to combine the potential of circa <unk> machine learning program.

With our ice spreads detect computer vision and intellect AI software solutions. These software solutions enable supervised autonomy on the SAPIEN products today in February Rd square to announce a strategic partnership with picnic to work together on the development of autonomous robotic system, we believe that bringing autonomy to unstructured environment has significant potential.

<unk> for our combined company and we look forward to accelerating our software platforms together to lead the industry in bringing artificial intelligence to the edge.

Turning to the commercialization efforts of our Guardian and SAPIEN products, we continue to hear from our partners' current customers and potential customers about hiring sufficient people to perform physical task is a challenge.

One that is unlikely to change our go away.

And the stat on our last call, but I think it bears repeating recent research suggests almost $55 million job openings are expected. This.

Decade in the U S alone most of them related to skilled workers, leaving the workforce filling these opens open positions will be a challenge for every industrial company.

Therefore, we believe the conversations with our industrial partners.

Support that there is a strong and growing market for technology that can solve the shortage of workers to undertake manual tasks.

Particularly in those unstructured environments, where traditional automation is impractical today and likely to be so for the long term. In addition companies across the industrial space or in the market for solutions to keep their employees safe whether by reducing work at height or in dangerous situations are incorporating technology.

To reduce fatigue or repetitive stress injuries, we believe surface technologies will play a critical role in alleviating these pain points for our customers. Our full range of robots that combine the intelligence intelligence and skill of human workers with the strength and endurance of machines has the potential to become the workforce of the future we intend to keep.

You updated on our progress toward our primary goal of commencing initial production of our commercial Guardian, XO and Guardian extra units and milestones that we need to achieve as we progress towards that goal as well as the continued production of the CPM product line as of today. We continue to expect commercial commenced commercial initial production of commercial.

Units of our Guardian, <unk> and Guardian XO products by the end of 2022 for delivery to customers in early 2023.

As I mentioned in our last call we executed a beta testing of our Guardian X T. Taylor operated robot in the first quarter for both government and commercial clients to date. This year. We have completed several successful well received demonstrations with Guardian XD working with off the shelf tools, including grinders buffers and drove partners and potential customers who have a width.

These demonstrations have been impressed by the improved dexterity range of motion strength and ease of use at the beta unit demonstrates over its predecessor.

As a result of the successful tests, we have been able to secure expanded engagements with two partners and we hope to be able to update you on details.

Of these new contracts very soon.

We are also making progress on the development of our Guardian XL full body powered exoskeleton as <unk>.

Mentioned in our last call we have assembled and are in the process of internally testing key parts of the Guardian XO Beta unit, our focus for the exoskeleton as weight reduction to ensure the commercial units to meet our customer needs over the past few weeks, we have achieved a number of positive developments in reducing the weight and complexity with suite.

Which will help to minimize the supply chain risk and simplify commercial production.

On previous calls we have talked about challenges with hiring qualified candidates and sourcing required components or materials. The inclusion of new team members from <unk> has added much needed expertise to the company, but we are still in need of qualified new hires in several technical walls.

We have welcomed a number of excellent team members since our last call, but the labor market for companies like Sarko seeking highly qualified individuals continues to be very very competitive.

And we still have open positions.

In addition constraints constraints on our supply chain has been intensified by the war in Ukraine and continue to cause difficulties in order to future proof the manufacturer of our commercial units. We have made the decision to pre purchase components and materials and a number of key areas to ensure we have critical components for manufacturing. These purchases will have a minor impact on our <unk>.

<unk> thousand 20, <unk> cash position and Steve will update you on this in his remarks, but we think it is important action to safeguard our stated timelines.

Yes.

As we finalized our commercial manufacturing plan I want to I want to outline the current projected capacity through 2023 at this stage, we expect to be able to produce between 300 500 units in Salt Lake City, depending upon the mix of Guardian Guardian, <unk> XT and Guardian XO products, we continue to believe Sarcos future success.

Dependent on three factors first of these three factors is having sufficient funding to bring our products to market. Even following the acquisition of Ari spreads Sarcos continues to have some substantial cash position and we continue to believe we have more than sufficient funding to begin initial production of our commercial units of both our Guardian XO and Guardian XT.

As well as accelerate production of the SAPIEN products the <unk>.

Second factor is whether we can develop the technology to meet customer requirements as I said earlier in my remarks customer feedback on the demonstrations of the capabilities and performance of the Guardian XT and the SAPIEN units has been excellent and we believe we can achieve the same result with regard regarding XO beta is ready for customer trials as we have integrated.

Alpha trial and customer advisory feedback throughout all the design phases.

We are already have sapient robots with customers for testing and once we have the Guardian and.

And Guardian XO beta units and field, we are confident that our products will provide positive ROI for our customers. The third critical factor for commercial success above all we are very happy with the progress made in the corner.

The acquisition of <unk>, the successful testing and demonstration of our cardio XO equity unit and our esports technological achievements and new development.

Partnerships are all <unk>.

To a very bright future for Sarcos.

I would like to conclude by thanking all the members of the Sarcos team, who have worked hard to close the combination of our E squared and develop our technology. During the first half of 2022 with that I'll turn it over to Steve to go through the financials.

Thanks, Steven and good afternoon to everyone listening today, firstly I'd like to join keeping in welcoming the Rd square team members to Sarcos on a personal note I've enjoyed getting to know you, Oregon and the rest of the team at already squared and I firmly believe that this is a startup great things for our combined company.

Firstly and most importantly, sarcos continues to have a healthy liquidity position at.

At the end of March our unrestricted cash and cash equivalents stood at approximately $199 million.

Importantly, we continue to believe that the cash we have on hand today will be easily sufficient to enable us to begin initial commercial production of both our Guardian XO full body exoskeleton robot and guarding next T til operated robot.

Now turning to the details of the acquisition total consideration for the transaction was $100 million.

It consisted of $30 million in cash net of cash acquired and approximately $10 8 million shares of newly issued common stock the.

The company also assumes certain outstanding options to acquire our <unk> common stock, which represent the right to acquire $3 9 million shares of common stock to.

The stock component represents dilution to <unk> stockholders of approximately 6% based on a fully diluted share count of approximately 231 million shares.

We believe this acquisition represents excellent value for <unk> stockholders, given the potential benefits and we're excited to start work on unlocking the potential of the transaction.

Now that the transaction is closed we can start to benefit from <unk> commercial contracts and relationships, but since the transaction only closed in late April we are still in the process of developing forecast for the combined company.

As a result, any financial information for the first quarter of 2022, and any guidance I'd give for future periods. In my prepared remarks will be for <unk> without the impact of the business of R. Squared unless it is specifically stated to include R. Squared.

On our next earnings call I anticipate providing guidance on a combined company basis.

This afternoon, we released our first quarter earnings and 10-Q filing in which we reported quarterly revenue of <unk> 7 million.

Compared to $1 8 million in the first quarter of 2021.

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

As a result of this change and work efforts revenue for research and development services was zero point $7 million in the first quarter of 2022 down from $1 6 million in the same quarter of 2021.

As I have mentioned previously with our focus on meeting our commercialization timeline, we will continue to accept only development contracts that are fully aligned with our commercialization efforts and anticipate the quarterly development revenues for Sarcos as it has existed in Q1 of this year may continue to be lower on a year over year basis in the near term.

We had minimal product sales of Guardian Guardian, HOS and parts and accessories during the first quarter.

As a result of product revenue for the quarter of $10000 compared to product sales of <unk> 2 million in the first quarter of 2021.

As I mentioned in our last call sales of these products are not expected to form a material part of our revenue in the future as we focus on the commercial launch of our core Guardian, XO and Guardian, XT products, and our safety and product line.

Total operating expenses increased from the $7 million in the first quarter of 2000, and 2021% to $26 4 million in the March quarter end of this year 10.

$10 7 million of this increase was due to higher stock based compensation expense, primarily from stock grants began investing upon the closing of the business combination in September last year, and approximately $1 5 million of expenses related to the acquisition of Ari squared.

Other general and administrative expenses, including business insurance and legal expenses were also higher to ensure compliance with listing rules and security laws and other requirements of operating as a public company.

Sales and marketing expense were $2 2 million also higher on a year over year basis and up from <unk> 7 million in the first quarter of 2021.

Much of this increase was due to the engagement of professional services from a third party vendor to assist with data management of our products and services and higher stock based compensation expense.

Research and development expense increased from $2 8 million in the first quarter of 2021 to $5 9 million in the first quarter of this year.

We incurred additional expenses from the increase in engineering production and supply chain head count and other expenditures to prepare for the commercial production of our products.

We continue to expect R&D expenses, as well as general and administrative and sales and marketing expenses to be higher year over year for the remainder of 2022 as we work on our commercialization pathway and just to life as a public company.

As a result of these increases.

Resulted in increased operating expenses, our net loss in the first quarter of 2022 was $19 2 million or <unk> 14 per diluted share an increase from a net loss of $5 2 million or <unk> <unk> per diluted share in the March quarter end of 2021.

As I've mentioned on previous calls some of our warrants are accounted for as liabilities 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. This obligation will introduce unpredictable volatility into our earnings each quarter until the warrants are fully exercised or expired and will make it difficult for us to forecast the effect of warrant accounting on our statement of operations and comprehensive loss.

Excluding stock based compensation expense warrant liability and certain other items related to the closing of the business combination with rotor during 2021 and expenses associated with the acquisition of R. Squared during quarter one of 2022, our non-GAAP net loss share per share for the first quarter was 10.

Please see our earnings press release filed today for full requisite reconciliation of the non-GAAP net loss calculation.

The fully diluted weighted average number of shares for the first quarter of 2022 was $137 9 million.

As of April 29th our outstanding share Count was $153 8 million, including certain stock option exercises and settlements of <unk> as well as stock issued in connection with the acquisition of Ari squared.

Given the widely discussed macroeconomic supply chain and hiring challenges affect the market. There are continues to be a focus on the liquidity position of our newly public companies that are commercializing that are commercializing innovative technology.

Our cash used in operating activities for the first quarter was $12 5 million or an average cash burn of $4 2 million. A month. We also spent $5 3 million to repurchase shares for the payment of tax withholdings.

Capital expenditures during the first quarter were <unk> $5 million incurred primarily due to construction work to complete outstanding work on our new headquarters, including the purchase of fixtures and other tenant improvements.

We believe it will be helpful to forecast our cash burn for the rest of 2022.

As we scale up in anticipation of the commercial production of our core products. We continue to anticipate that the average monthly cash burn from operations and capital expenditures for <unk>, excluding the impact of R. Squared will be approximately $5 5 million for 2022.

This number is likely to be more heavily weighted towards the latter months of the year as we ramp up investments focused on the commercial release of our products.

In addition, as I mentioned on our previous call. We continue to estimate the cash impact averaging approximately $1 million a month from the purchase of stock to satisfy certain tax obligations on the vesting of employee stock awards through the end of 2022.

As Keith mentioned in her remarks remarks in order to address some of the supply chain challenges. We are seeing in the market. We have taken a decision to pre purchase materials and components to manufacturing of our commercial units.

Most if not all of this expense will not hit the P&L during 2023.

Until 2023, but we currently expect the purchase could increase cash burn during 2022 by a total of up to $3 million dependent on the delivery date.

As a reminder, all of these projections are for <unk> without taking into account any expected impact of R squared business.

We are still working through the impact of very square transaction, our monthly cash burn for 2022, but in the short term we do not believe it will have a material impact and longer term. We continue to believe the acquisition will accelerate our path to positive free cash flow by a quarter.

That concludes my remarks.

Again, I would like to join Kiva and thinking the entire surface team for their hard work in the first quarter of this year.

The acquisition of R squared in the forthcoming commercialization of our products makes us a very exciting time to be asarco's.

We will now open the line for questions. Operator will you. Please repeat the instructions to ask a question.

Thank you 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.

By while we compile the Q&A roster.

Our first question comes from Stephen Volkmann from Jefferies.

Okay alright good.

Gives me good afternoon, everybody. Thanks for taking my question.

Maybe we can just start I am curious.

Sounds like the <unk> XT are kind of on schedule and as we have discussed so no surprises there, but what types of things are you still needing to work on and prove out.

<unk> units as you're trying to get closer to year end in that target.

Yes, Great question, Steve So as we mentioned very very focused on weight fleet reduction as we also mentioned a lot of work on it.

And a milestone last December with regard to being able to stabilize itself. When the human is outside of the unit. So very focused on I would say that the feedback from the alpha units around rate design.

Increased functionality and stability.

Okay great.

Great and then on the sapient.

I know you're not ready to provide any guidance yet but is there a revenue from that already or is this also a pre revenue situation.

So the SAPIEN products, they've got over 650 products they've shipped over 650 products. They do have commercial product today. So.

At the next call, we'll be able to outline exactly what impact that has for us and really.

What we are forecasting from there.

Okay. So presumably there is some level of cash burn that they have then we'll hear about that later, but it is it will add to the <unk>.

The cash burn in the medium term I suppose.

Yeah, our focus right now is really to maintain and as Steve had mentioned, we don't feel that it will have a material impact so again.

They've been the last 20 years very very focused on.

Keeping keeping enough revenue coming in enough projects coming in to cover their costs.

Okay. That's good color I appreciate that and then.

We still sort of planning kind of I don't know a roadshow for lack of a better word as we can.

Kind of go over the summer and then default to <unk>.

Get out and show these units to potential customers is that still the plan.

Yes, 100%, we're really excited about that the team is working very very hard to retro. The roadshow to include we've got four new products. We really want to include in that and we're targeting the fall fill.

Super Okay I'll pass it on thank you.

Thanks.

Our next question comes from John Walsh with Credit Suisse.

Hi, good afternoon.

Hi, John .

Hi.

Wanted to come back to this point you are making on liquidity.

Really first of all I appreciate the detail that you are providing around the cash burn and obviously.

Your balance outstanding as of March that you referenced earlier.

I just wanted to make sure I understand some of this math correct. So I believe there is $30 million.

That would be cash out for R squared that probably Wouldnt show up in the March financials, because it's closed in April .

And then I guess, the $6 5 million.

Just kind of times 12 to think about what the operating cash burn is without already square just.

I don't know were there any other moving pieces there just trying to make sure we really hone in on that point. Please.

John That's a good question, yes, so let me just clarify yes as of the quarter and the cash for the acquisition was not an enclosed in that number the $199 million balanced so since the close of the quarter, we paid $30 million of cash.

<unk> for the acquisition we've.

We've incurred a little bit of expense associated with that as well, but as a kind of broken out our normal operating burn we expect to be on average.

$5 5 million between the four for the full year again, we ended the first quarter $4 2 million burn, but we will expect some increase towards the latter end of the year and then on top of that we have the expense associated with some capital investments will do with regarding our building of our beta units and so forth and then thirdly, just to kind of isolate out.

On average, we expect about $1 million to purchase back shares that are associated with covering taxes for certain equity positions that have been taken by the or given to the respective employees involved in the company.

Okay, great. So it sounds like we pretty much identified all the buckets there theres nothing that were missing right now no okay great.

And then I guess John go ahead.

Let me clarify one point, we did mention that the longer term material needs. We need I have included this time around too to note that as we get to that point of production. We're looking for some items that we have to buy now because the long lead time, so I expect that maybe up to $3 million will hit on my balance sheet.

Between now and the end of the year for some purchases that they come in for that 2023 production. So just no thats an additional amount I mentioned this time round.

Got you Okay, yeah, not unusual we're hearing that from everyone given supply chains.

Yes, I don't make sure we've got everything to build.

Yeah no.

That's very important.

I'm sure. Your customers are also very happy to hear that as well and then as we think about the delivery of units into 2023 can you just remind us are those still are those slots still kind of like letters of intent or do you have kind of firm orders, there yet and if not when.

We kind of get announcements around customers. Thank you.

Yes, I mean, we're not we're not updating guidance at this point with regard to to the orders, but we hope in short order, we'll be able to provide additional clarity on who those lighthouse customers are going to be.

Got you great well I appreciate you taking the questions. Thank you and I'll pass it along.

Thanks, Thanks, John I appreciate it.

Our next question comes from Rob Mason with Baird.

Good afternoon, everyone.

Yes.

Keith you had mentioned in your dialogue.

Expanded engagement with thought.

Two customers or potential customers that we.

I wanted to see if you could just elaborate there and what the implications were.

For Sarcos yet.

Yes, you definitely we're definitely seeing good momentum and traction and as I just said.

John will be hopefully you're able to share a little bit more detail with you.

And soon onto those lighthouse customers are but we're not sharing additional information at this time.

Okay. So.

As a reference to additional lighthouse customers essentially.

Alright.

To that.

The expanded engagements with too.

Are those new.

For middle to our existing or just it expanded engagements just so I'm clear it.

It's a combination of both.

Yes, we will be able to and we will be able to share. So again I think the nice pieces.

Increased.

Because we are in the new space.

Been able to do over 50 different demos in the first quarter alone and as people start to see the product.

They always.

Ha moment seeing is believing for sure.

With the new facility and our ability to demonstrate and get product into customers hands, we've definitely seen some really good traction.

Yes, yes.

And then with respect to <unk> square.

I understand not providing any guidance here.

In the immediate term, but last year I believe they had about $15 million in revenue and I'm just curious how much of that was.

Commercial activity versus development related activity.

How that relative pipeline between those two buckets might look as you.

As you bought the business.

That's a good question right now it's $15 million. It was a combination of product and services, although we're not disclosing yet we'll give that guidance next time around but that is kind of what I'll say is a stepping stone to where we're heading with this combined business of a product shift and growth opportunities for four abreast of this year as well as going into that.

Years so.

That that was the very benefit we've gotten from R. Squared is that kind of commercialization in place.

Okay.

Just last question and I'll stick to our square can you give us any feel for what the range of price points are on the SAPIEN product.

Yes, not at this time, what I, what I will say, though is that at the next call, we'll be able to really showcase that combined portfolio.

The beauty of it is we're now going down both from a price point and capability perspective.

Okay.

The very entry level, which is the operating room and all the way to subsea. So we'll be able to provide a lot more color at the next call.

Very good.

Stay tuned thank you.

Thank you.

Our next question comes from Stephen Volkmann with Jefferies.

Hello again.

Steve Olsen.

Yes.

Particularly mentioned in your comments that you had capacity for between three and 500 units until at Citi.

And obviously, we have a lot more in the model as we go forward. So what's the plan or is it still sort of an outsourced beyond that type of plan or are you doing something else to be able to raise your own internal capacity.

Yes. So are you squared also has capacity within their facility in Pittsburgh. So that is part of the current.

The evaluation that we're going through but we did issue an RFP for contract manufacturing and we still hope to close and identify that this year and then have that up and running by the end of 2023.

Okay, great. Thank you.

Yeah.

I'm showing no further questions at this time I would now like to turn the conference back to keep AGA Chief Executive Officer.

Thank you Andrea we're extremely excited about all the questions. Today. So thank you guys for the engagement and interest the combination with Ari squared mean, sarcos as an even stronger position to develop products to enable the most safe productive and cost effective workforces in the world. We're excited by our mission and we look forward to keeping you up to date on our progress. Thanks for the interest if you have any.

Let them know.

Yes.

Thank you.

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

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If you require assistance during the conference. Please press Star Zero I would now like to hand, the conference over to your speaker today than <unk> head of Investor Relations.

Thanks Andrea.

Good afternoon, everyone and welcome to the <unk> first quarter earnings call.

Joining us on the call. This morning are <unk>, President and Chief Executive Officer, Keith <unk>, Chief Financial Officer, Steve Hansen.

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

One of our website at <unk> dot com and on the SEC's website.

Website.

We appreciate everyone joining us today. This afternoon I will update you on the first quarter of the year and our expectations for the rest of 2022 after that I will hand, the call over to Steve Hansen, Our CFO , who will give you a financial update on the company and then we will open it up for calls.

Question due to the final calendar. This call comes only six weeks after our last earnings call, but despite the brief time between calls the team has managed to achieve a great deal since our last update as many of you are aware we closed the acquisition of Ari squared on April 25th the Ari Square team is now part of circa <unk> founder and CEO .

Oregon Patterson is now the Chief operating officer, Sarcos and we have started the process of integrating two teams into one combined team, we're executing an aggressive but people first integration plan that started with joint Onboarding and training sessions in both locations and the cross pollination of teams at both sites Youre going to and I remain confident that the <unk>.

Combined Sarcos team has a strong commercial and cultural fit and I believe the combination will have a positive impact on our employees stakeholders and customers.

Combination of the products people and performance metrics are where I'll focus now.

Yes.

We now have a broader product portfolio, both sarcos and Ari squared are leaders in the development of Tele operated robotics, and we believe our complementary products will allow us to realize significant value from the acquisition R. Squared sapient product line of robotic arm work in markets that surface products are not currently designed to address therefore widening there.

Potential Tam of our combined product roadmap and allowing us to offer a broader range of solutions to both commercial and government customers.

<unk> safety product offered different dexterity manipulation lifting capacity and price points than the Guardian products, all the new capabilities allow us to deliver on our unified mission to increase worker productivity longevity and prevent injuries through robot.

These team members collectively have over 50 years of designing building and perfecting robotic systems and I have already witnessed the power of bringing these two teams together with our first technical deep dive. We now have two locations Pittsburgh in Salt Lake City, which will allow us to offer employees and new hires a choice of locations and capitalize on our robotics ecosystem.

And the use of robotics capital.

Berger.

To deliver on our mission, we need to execute to our product deliverables on key performance metrics and I'll provide an update on our combined roadmap later in the call, but first I'd like to be helpful to set out our product line stands following the RV squared acquisition I'll start with the Guardian product line, our Guardian XO industrial exoskeleton is capable.

<unk> lifting up to 200 pounds with little to no human effort and depending on the use case, we can improve worker productivity by a multiple of two three or even more while simultaneously making employees safer.

Second quarter product the Tele operated Guardian, XD, a one or two arm upper body robot, which can be mounted on a variety of lyft platforms and mobile basis, making it ideal for a wide scope of industrial applications, including at height overhead ground level configurations like the SAPIEN robots. The Guardian XT allows operators to perform work in danger.

Environment at a height at heights, while the operator remains out of Harm's way.

The CPM product family of robotic arms developed by Ari squared has several models, which range from 4% to seven degrees of freedom of movement and have different weights ranging from under 30 pounds to over 400 pounds, depending on the environment and the application of <unk>.

APM arm can be used in a single or dual mode combined with the <unk> Division autonomy software is able to undertake work in the medical construction aviation.

Industries amongst others, keeping workers safe also keeping workers safe and improving productivity.

In addition, the SAPIEN C class variant can be tele operated in both shallow and deepwater environments to complete a number of inspection and maintenance tasks across multiple industries.

Second we expect to benefit from memory revenues associated with our esports partnership with the government and commercial customers, who are funding the development of a number of our iceberg advanced robotic condition.

During the first quarter ice squared announce a development partnership with J LNG industry is to focus on integrating at sapient arm technology and <unk> access equipment.

Also in Q1, the Sapient C class successfully achieved an unprecedented depth depth milestone of one kilometer during an open wire demonstration.

It's maritime mine Mutualization system known as <unk>.

For the U S. Navy's office of Naval Research, who is sponsoring the project, we look forward to sharing more exciting news about the sapient portfolio very soon.

Finally, the transaction will enable us to combine the potential of circa <unk> machine learning program with.

With our ice Greg the tax computer vision and intellect AI software solutions. These software solutions enable supervised autonomy on the SAPIEN products today in February our ice square to announce a strategic partnership with picnic to work together on the development of autonomous Robotics system, we believe that bringing autonomy to unstructured environment has significant potential.

For our combined company and we look forward to accelerating our software platforms together to lead the industry in bringing artificial intelligence to the edge.

One that is unlikely to change our go away.

And does that on our last call, but I think it bears repeating recent research suggests almost $55 million job openings are expected. This.

Decade in the U S alone most of them related to skilled workers, leaving the workforce filling these open open positions will be a challenge for every industrial company.

Therefore, we believe the conversations with our industrial partners.

Ports that there is a strong and growing market for technology that can solve the shortage of workers to undertake manual tasks.

Particularly in those unstructured environments, where traditional automation is impractical today and likely to be so for the long term. In addition companies across the industrial space or in the market for solutions to keep their employees safe whether by reducing work at height and dangerous situations are incorporating technology.

To reduce fatigue or repetitive stress injuries, we believe surface technologies will play a critical role in alleviating these pain points for our customers. Our full range of robot that combine the intelligence intelligence and scale of human workers with the strength and endurance of machines has the potential to become the workforce of the future we intend to keep.

You update on our progress toward our primary goal of commencing initial production of our commercial Guardian, XO and Guardian extra units and milestones that we need to achieve as we progressed towards backhaul as well as the continued production of the CPM product line as of today. We continue to expect commercial commenced commercial initial production of commercial.

Of our Guardian, XT and Guardian XO products by the end of 2022 for delivery to customers in early 2023.

As I mentioned in our last call, we executed beta testing of our Guardian X T. Taylor operated robot in the first quarter for both government and commercial clients to date. This year. We have completed several successful well received demonstrations regarding XD working with off the shelf tools, including grinders buffers and drill partners and potential customers, who the Whitney.

These demonstrations have been impressed by the improved dexterity range of motion strengthened ease of use at the beta unit demonstrates predecessor.

As a result of the successful tests, we have been able to secure expanded engagements with two partners and we hope to be able to update you on details.

Of these new contracts very soon.

We are also making progress on the development of our Guardian XL full body powered exoskeleton as I mentioned in our last call. We have assembled and are in the process of internally testing key parts of the Guardian XO Beta unit, our focus for the exoskeleton as weight reduction to ensure the commercial units to meet our customer needs over the past few weeks, we have achieved a number of positive.

<unk> and reducing the weight and complexity vasu.

Which will help to minimize the supply chain risk and simplify commercial production.

On previous calls we have talked about challenges with hiring qualified candidates and sourcing required components or materials.

<unk> a new team members from our iceberg has added much needed expertise to the company, but we are still in need of qualified new hires in several technical walls.

We have welcomed a number of excellent team members since our last call, but the labor market for companies like Sarcode seeking highly qualified individuals continues to be very very competitive.

And we still have open positions.

In addition constraints the constraints on our supply chain has been intensified by the war in Ukraine and continue to cause difficulties in order to future proof the manufacturer of our commercial units. We have made the decision to pre purchase components and materials and a number of key areas to ensure we have critical components for manufacturing. These purchases will have a minor impact on our <unk>.

<unk> thousand 20, <unk> cash position and Steve will update you on this in his remarks, but we think it is important action to safeguard our stated timelines.

Yes.

As we finalized our commercial manufacturing plan I want to continue I want to outline the current projected capacity through 2023 at this stage, we expect to be able to produce between 300 500 units in Salt Lake City, depending upon the mix of Guardian Guardian, <unk> Guardian, <unk> and Guardian XO products, we continue to believe Sarcos future successes.

Dependent on three factors.

First of these three factors is having sufficient funding to bring our products to market. Even following the acquisition of <unk> spreads Sarcos continues to have a substantial cash position and we continue to believe we have more than sufficient funding to begin initial production of our commercial units of both our Guardian, XO and Guardian, XT as well accelerate production.

One of the SAPIEN product the <unk>.

Second factor is whether we can develop the technology to meet customer requirements as I said earlier in my remarks customer feedback on the demonstrations of the capabilities and performance of the Guardian XT and the SAPIEN units has been excellent and we believe we can achieve the same results with regard regarding XO beta is ready for customer trials as we have integrated.

Alpha trial and customer advisory feedback throughout all design phases.

We are already have CPM robots with customers for testing and once we have the Guardian and.

And Guardian XO beta units and field, we are confident that our product will provide positive ROI for our customers.

Third critical factor for commercial success above all we are very happy with the progress made in the corner.

Acquisition of <unk>, the successful testing and demonstration of our targeted <unk> unit and <unk> technological achievements and new development.

Partnerships are all <unk>.

So a very bright future for Sarcos.

I would like to conclude by thanking all the members of Asarco as teams that have worked hard to close the combination of our E squared and develop our technology. During the first half of 2022 with that I'll turn it over to Steve to go through the financials.

Thanks, Steven and good afternoon to everyone listening today, firstly I'd like to join Kevin in welcoming the Rd square team members to Sarcos on a personal note I've enjoyed getting to know you, Oregon and the rest of the team at R squared and I firmly believe that this is a startup great things for our combined company.

Firstly and most importantly, sarcos continues to have a healthy liquidity position at.

At the end of March our unrestricted cash and cash equivalents stood at approximately $199 million importantly, we continue to believe that the cash we have on hand today will be easily sufficient to enable us to begin initial commercial production of both our Guardian XO full body exoskeleton robot and guarding next T til operated robot.

Now turning to the details of the acquisition total consideration for the transaction was $100 million consisted of $30 million in cash net of cash acquired and approximately $10 8 million shares of newly issued common stock.

The company also assumes certain outstanding options to acquire our <unk> common stock, which represent the right to acquire $3 9 million shares of common stock.

The stock component represents dilution to <unk> stockholders of approximately 6% based on a fully diluted share count of approximately 231 million shares.

We believe this acquisition represents excellent value for <unk> stockholders, given the potential benefits and we're excited to start work on unlocking the potential of the transaction.

Now to the transaction is closed we can start to benefit from <unk> commercial contracts and relationships, but since the transaction only closed in late April we are still in the process of developing forecast for the combined company.

On our next earnings call I anticipate providing guidance on a combined company basis.

This afternoon, we released our first quarter earnings and 10-Q filing in which we reported quarterly revenue of <unk> 7 million compared to $1 8 million in the first quarter of 2021.

As a result of this change and work efforts revenue for research and development services was zero point $7 million in the first quarter of 2022 down from $1 6 million in the same quarter of 2021.

As I've mentioned previously with our focus on meeting our commercialization timeline, we will continue to accept only development contracts that are fully aligned with our commercialization efforts and anticipate the quarterly development revenues for Sarcos as it has existed in Q1 of this year may continue to be lower on a year over year basis in the near term.

We had minimal product sales of Guardian Guardian, HOS and parts and accessories during the first quarter.

As a result of product revenue for the quarter of $10000 compared to product sales of <unk> 2 million in the first quarter of 2021.

Total operating expenses increased from $7 million in the first quarter of 2000, 22021% to $26 4 million in the March quarter end of this year.

Sales and marketing expense were $2 $2 million also higher on a year over year basis and up from <unk> 7 million in the first quarter of 2021.

Research and development expense increased from $2 8 million in first quarter of 2021 to $5 9 million in the first quarter of this year.

We incurred additional expenses from an increase in engineering production and supply chain head count and other expenditures to prepare for the commercial production of our products.

As a result of these increases.

The result of increased operating expenses, our net loss in the first quarter of 2022 was $19 2 million or <unk> 14 per diluted share an increase from a net loss of $5 2 million or <unk> <unk> per diluted share in the March quarter end of 2021.

As I've mentioned on previous calls some of our warrants are accounted for as liabilities and were required 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. This obligation will introduce unpredictable volatility into our earnings each quarter until the warrants are fully exercised or expired and we will make it difficult for us to forecast the effect of warrant accounting on our statement of operations and comprehensive loss.

Please see our earnings press release filed today for full requisite reconciliation of the non-GAAP net loss calculation.

The fully diluted weighted average number of shares for the first quarter of 2022 was $137 9 million.

As of April 29, our outstanding share count was $153 $8 million, including certain stock option exercises and settlements of <unk> as well as stock issued in connection with the acquisition of Ari squared.

Given the widely discussed macroeconomic supply chain and hiring challenges affect the market. There are continues to be a focus on our liquidity position of our newly public companies that are commercializing that are commercializing innovation technology.

Capital expenditures during the first quarter were <unk> 5 million.

<unk>, primarily due to construction work to complete outstanding work on our new headquarters, including the purchase of fixtures and other tenant improvements.

We believe it will be helpful to forecast our cash burn for the rest of 2022.

As we scale up in anticipation of the commercial production of our core products. We continue to anticipate that the average monthly cash burn from operations and capital expenditures for Sarcos, excluding the impact of R. Squared will be approximately $5 $5 million for 2022.

This number is likely to be more heavily weighted towards the latter months of the year as we ramp up investments focused on the commercial release of our products.

Until 2023, but we currently expect the purchase could increase cash burn during 2022 by a total of up to $3 million dependent on the delivery date.

As a reminder, all of these projections are for <unk> without taking into account any expected impact of R squared business.

We are still working through the impact of various square transaction, our monthly cash burn for 2022, but in the short term we do not believe it will have a material impact and longer term. We continue to believe the acquisition will accelerate our path to positive free cash flow by a quarter.

That concludes my remarks.

I would like to join Kiva and thanking the entire circles team for their hard work in the first quarter of this year the acquisition of R. Squared in the forthcoming commercialization of our products makes us a very exciting time to be a sarcos.

We will now open the line for questions. Operator will you. Please repeat the instructions to ask a question.

Thank you 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.

By while we compile the Q&A roster.

Our first question comes from Stephen Volkmann from Jefferies.

Alright, alright, good afternoon, excuse me and good afternoon, everybody. Thanks for taking my question.

Maybe we can just start I am curious.

Sounds like the extra on the XT are kind of on schedule and as we have discussed so no surprises there, but what types of things are you still needing to work on and prove out on those units as you're trying to get closer to year end in that target.

Yeah, Great question. So as we mentioned very very focused on weight weight reduction as we also mentioned a lot of work on.

Increased functionality and stability.

Okay great.

Great and then on the sapient stuff.

I know you're not ready to provide any guidance yet but is there revenue from that already or is this also a pre revenue situation.

So the SAPIEN products, they've got over 650 products they've shipped over 650 products. They do have commercial product today. So.

At the next call, we'll be able to outline exactly what impact that has for us and really.

What we are forecasting from there.

Okay. So presumably there is some level of cash burn that they have then we'll hear about that later, but it is it will add to the <unk>.

The cash burn in the medium term I suppose.

Yeah, our focus right now is really to maintain and as Steve had mentioned, we don't feel that it will have a material impact so again they.

They've been the last 20 years very very focused on.

Keeping keeping enough revenue coming in enough projects coming in to cover their costs.

Okay. That's good color I appreciate that and then.

Are we still sort of planning kind of I don't know a roadshow for lack of a better word as we can.

Kind of go over the summer and then default to <unk>.

Get out and show these units to potential customers is that still the plan.

100%, we're really excited about that the team is working very very hard to retro. The roadshow to include we've got four new products. We really want to include in that and we're targeting the fall sell.

Super Okay I'll pass it on thank you.

Thanks.

Our next question comes from John Walsh with Credit Suisse.

Hi, good afternoon.

Hi, John .

Hi.

Wanted to come back to this point you are making on liquidity.

Really first of all I appreciate the detail that you are providing around the cash burn and obviously.

Your balance outstanding as of March that you referenced earlier.

I just wanted to make sure I understand some of this math correct. So I believe there is $30 million.

That would be cash out for Ari square that probably Wouldnt show up in the March financials, because it's closed in April .

And then I guess.

Yes, the $6 5 million does that just kind of times 12 to to think about what the operating cash burn is without already square just.

I don't know are there any other moving pieces there just trying to make sure we really hone in on that point. Please.

John That's a good question, yes, so let me just clarify yes as of the quarter and the cash for the acquisition was not an enclosed in that number the $199 million balance so since the close the quarter, we paid $30 million of cash.

<unk> for the acquisition we've.

We've incurred a little bit of expense associated with that as well, but as a kind of broken out our normal operating burn we expect to be on average.

Okay, great. So it sounds like we pretty much identified all the buckets there theres nothing that were missing right now okay great.

And then I guess John go ahead.

Let me clarify one point, we did mention that the longer term material needs. We need I have included this time around too to note that as we get to that point of production. We're looking for some items that we have to buy now because of the long lead times. So I expect that maybe up to $3 million will hit on my balance sheet.

Between now and the end of the year for some purchases that they come in for that 2023 production. So just no thats an additional amount I mentioned this time round.

Got you Okay, yes, not unusual we're hearing that from everyone given supply chains.

Yes.

Sure we've got everything develops.

Yeah no.

That's very important.

We kind of get announcements around customers. Thank you.

Got you great well I appreciate you taking the questions. Thank you and I'll pass it along.

Thanks, John Thanks, John I appreciate it.

Our next question comes from Rob Mason with Baird.

Hi, yes, good afternoon, everyone.

Okay.

Keith you had mentioned in your dialogue.

Expanded engagement with.

Two customers or potential customers that we.

I wanted to see if you could just elaborate there and what the implications were.

For Sarcos, yes.

Yes, you definitely we're definitely seeing good momentum and traction and as I just said.

John will be hopefully you're able to share a little bit more detail with you.

And soon onto those lighthouse customers are but we're not sharing additional information at this time.

Okay. So.

As a reference to additional lighthouse customers essentially.

Alright.

The expanded engagements with too.

Are those new incremental to our existing or just it expanded engagements.

Clear.

It's a combination of both.

So, yes, we will be able to and we will be able to share. So again I think the nice pieces we've increased.

Because we are in the new space, we've been able to do over 50 different demos in the first quarter alone and as people start to see the product that.

They always Baja moment seeing is believing for sure so with the new facility and our ability to demonstrate and get product into customers hands, we've definitely seen some really good traction.

Yes, yes.

And then with respect to R squared.

I understand not providing any guidance here.

In the immediate term, but last year I believe they had about $15 million in revenue and I'm just curious how much of that was.

Commercial activity versus development related activity.

How that relative pipeline between those two buckets might look as you know.

As you bought the business.

That's a good question right now it's $15 million. It was a combination of product and services, although we're not disclosing yet we'll give that guidance next time around but that is kind of what I'll say is a stepping stone to where we're heading with this combined business of our product shifts and growth opportunities for four abreast of this year as well as going into that.

Out years so.

That that was the very benefit we've gotten from R. Squared is that kind of commercialization in place.

Okay just.

Just last question and I'll stick to our your square can you give us any feel for what the range of price points are on the SAPIEN product.

Yes, not at this time, what I, what I will say, though is that at the next call, we'll be able to really showcase that combined portfolio.

The beauty of it is we're now going down both from a price point and capability perspective.

Okay.

Very entry level, which is the operating room and all the way to subsea so we'll be able to provide a lot more color at the.

The next call.

Very good.

We'll stay tuned thank you.

Thank you.

Our next question comes from Stephen Volkmann with Jefferies.

Hello again.

Steve Olsen.

Mentioned.

Particularly mentioned in your comments that you had capacity for between three and 500 units in Salt Lake City.

And obviously, we have a lot more in the model as we go forward. So what's the plan is it still sort of an outsourced beyond that type of plan or are you doing something else to be able to raise your own internal capacity.

Yes. So are you squared also has capacity within their facility in Pittsburgh. So that is part of the current.

The evaluation that we're going through but we did issue an RFP for contract manufacturing and we still hope to close and identify that this year and then have that up and running by the end of 2023.

Okay, great. Thank you.

Yeah.

I'm showing no further questions at this time I would now like to turn the conference back to keep AGA Chief Executive Officer.

Let them know.

Thank you.

Hi, apologies. This concludes today's conference call. Thank you for participating you may now disconnect.

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