Q3 2022 Embark Technology Inc Earnings Call
Greetings and welcome to embark trucks third quarter 'twenty 'twenty chewing call at this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
And no one should require operator assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Adam.
Lisa you may begin.
Thank you operator, and thank you everyone for joining US today joining me on today's call are co founder and CEO , Alex Rodriguez and CFO Richard Howell.
<unk> issued its third quarter 2022 press release and presentation, which we will refer to today. These can be found on the Investor Relations section of our website at investors dot embark trucks dot com.
Please note. This call will include forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements.
Reflect our views only as of today and should not be relied upon as representative about our views as of any subsequent date.
Undertake no obligations to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.
These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the SEC, including our annual report on Form 10-K filed on March 21, 2020 to our quarterly report on Form 10-Q filed on August 12, 2022, and other documents filed with the SEC.
From time to time.
We will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of <unk> performance.
These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. These additional disclosures regarding the non-GAAP financial measures in today's press release, and our filings with the SEC are posted on our company's Investor Relations website.
We are recording today's call and will make the recording available. This evening also on your website I would now like to turn the call over to Alex.
Thank you Adam.
Good morning, everyone.
Provide our last quarterly update in 2022 and walk through what we said we would deliver on how we have delivered on it and how these milestones set the stage for our progress in 2023.
Before I get into those updates on slide three I want to take a minute to talk about our tech teams here at <unk>.
Timber embark celebrated national truck driver appreciation week, recognizing the around the clock contribution of our safety drivers and <unk> operators.
And embark we deeply value safety and our people.
Embark safety drivers of some of the most experienced trackers in the industry with an average of over 20 years of experience and over 1 million miles per person operating day great.
Our Tech knowledge, Inc. Fees are Paramount Tin box perfect safety record as reported this past June by the National Highway traffic Safety administration.
For those not familiar I truck team consists of a safety driver and an <unk> operator.
The driver is focused on the truck and on the road, while the Avi operator is in the passenger seat or now sometimes or amount.
The role of the operator is to monitor the AAV system advised the safety drive around performance and continuously capture feedback on the system to relate back to engineering.
This company wide collaboration between the truck team and our World Class Engineering team is Paramount to building the software required to ultimately deploy.
Economists trucks safely.
The underlying theme as always safety first.
While on the topic of safety I also want to highlight one other recent development, which further underscores our commitment to having a world class safety organization.
Last month, we were very excited to welcome Peter James as our new head of systems Engineering and safety Peter.
Peter Most recently worked for over four years at Outrider and prior to that spent nearly a decade working on deploying autonomous trucks for the department of defense, while working at Lockheed Martin and others.
I embark Peter will leverage his experience and expertise, creating military grade autonomous trucks to further enhance the reliability manufacturer ability and safety of inbox autonomous system readying it for commercialization.
Now turning to slide four if you recall back in March during our first public earnings call. We laid out three primary milestones for 2022, and we reiterated these milestones on each quarterly earnings call since.
With this being our last earnings call in 2022, I wanted to walk you through how we market delivering on what we set out to do this year I will go into more detail on each of these throughout the presentation, but a quick reminder of our 2022 milestone first to deliver the first truck in the fleet of a carrier customer through our truck transfer program.
Second to demonstrate two of the five remaining capabilities in our technological roadmap, bringing the total capabilities accomplished at 13 of 16 by the end of 2022.
And third to watch the backbone of the Embarq coverage map across the Sunbelt region.
As I've said on prior calls we set our objective to provide a way for you to measure and track our progress as we continue on our path to commercialization.
We measure success by our ability to deliver on our stated objectives.
And to that end Im thrilled with Novartis achievements, so far in 2022 and happy to confirm that all of these milestones are on track for completion, which is a testament to our team's focus determination and consistency.
We look forward to sharing next year milestones in the coming months and more importantly, delivering on them in 2023.
Moving on to slide five I will update you on our first 2022 milestone the truck transit program or TTP with Knight Swift let.
Let me start by giving a little bit of context, all trucks on the road today operate under what is known as a motor coach or N C number which designates each truck to the operating authority of a particular fleet.
Prior to GDP, we believe all testing miles in pilots in AAV trucking industry.
Operated under the Avi providers empty number not under the carrier fleet.
This means that the 80 provider is legally responsible for the trucks operations not the fleet or shippers.
We believe this configuration for testing and running pilots is driven in part by the fact that these trucks are effectively prototypes that havent, yet achieved the maturity and reliability required for the technology developer to confidently transfer trucks to carrier customers with minimal maintenance and engineering oversight.
To take that next step towards commercialization, we must go from prototype to creating a product that can stand on its own within a customer's fleet.
This is exactly what GDP is doing for our knowledge TDP will be the first time that an AAV technology provider has put its technology on a carrier owned trapped under the empty number of the fleet.
And which will have its day to day maintenance and operation performed by the carriers after training with embark.
This transition to installing our <unk> technology on a carrier's trucks is truly unique in the industry.
And in order to complete this successfully we've taken a comprehensive three pronged approach focused on hardware design software and operations.
First on the hardware side, our TTP trucks included improved <unk> kit with upgrades to critical hardware components designed to achieve reliability for everyday use and can be easily serviceable by fleet maintenance staff with minimal training.
We also believe this is a powerful proof point of the Embarq universal interface or EU, I and our OEM agnostic approach.
We worked with Knight Swift to select trucks from their order book, which happens to be a new brand framework.
We then engage that Oems alongside Knight Swift and receive the necessary information, which will be required to ensure ely could be integrated with that platform.
Next we completed and validated the hardware integration on that new OEM platform on behalf of our carrier partners.
I want to highlight this process because it really reinforces the differentiation of embark universal interface for two reasons.
First our experienced the TTP demonstrates the carriers do have a strong preference about vehicle platform and will choose avi components to meet the requirements of those platforms and.
And second this shows that embarks platform agnostic approach is further validated by efficiently being able to integrate our hardware kit on a new truck platform and only a couple of quarters with.
With the completion of component level verification and validation or bnb testing. The next and final key hardware milestones remaining for the DTP program is the conclusion of track and climactic chamber testing at the proving ground.
Second software.
In order to achieve the seamless integration required for Knight Swift implement our technology in their fleet.
Several key upgrades to the software that allows for a frictionless Avi system launch experience handled by a single operator.
In many cases, the AAV system Buda process is a multi step process, often requiring incremental staff in time compared to a human driver preparing to depart.
Our system startup process has been streamlined now to allow for the AAV system to be operable in a comparable time to human driver preparing for departure.
Another software upgrade I want to highlight is our ability to automatically detect trailer presence in weight.
One thing to test software with a single test weight load, but in a real world setting every trailer is a different way and our software is now able to adapt to this real world scenario based on the weight of the load and finally, we're excited about our over the air data strategy, which reduces the data transmission needed to operate our EV trucks by approximately 95%.
I wanted to share a quick anecdote on how our PDP program led to this innovation.
About a year ago during regular discussions with one of our PDP partners, who is also testing technology from another player. We heard feedback that the other 80 player was asking them to install complex expensive data transmission infrastructure at each of their existing sites to increase bandwidth and support the hundreds of gigabytes of data they were producing per truck per day.
It was clear to us that this will be a pinpoint for our carrier customers and asking them to install dedicated bandwidth infrastructure was not a solution.
Using that carrier feedback embark has developed an intelligent data prioritization system that reduces our bandwidth needs by 95%.
Total bandwidth needs to within the bounds of a typical industrial site.
Instead of sending every data point all the time our system now only 10 data associated with specific topics or tags that are critical to technology development and safety.
It is a step change improvement in data efficiency that allows our carrier customers more flexibility operating heavy trucks on their own and at third party sites.
Our focused data optimized strategy is another example of how embark driver software continues to evolve from an R&D system to a commercial product.
And that brings me to operations and.
And bargain nitrate have been working closely to develop and test the standard operating procedures for dispatching monitoring and maintaining a commercial grade fleet of trucks.
People often don't appreciate the Avi trucking has never been done before which underscores the importance of developing the standard operating procedures and honing them through real world operations with leading partners.
We're going deep into the nuanced details to work out all the Kinks and enable a frictionless customer experience.
New operational achievements I want to highlight our transitioning our driver only configuration Tonight with integrating with night Sweats dispatch system and completing the initial maintenance program training.
Our driver only configuration is and Avi operating configuration that allows trucks to operate in <unk> mode without meeting a passenger side 80 operator.
Today, the industry standard for most AB testing as I spoke about at the beginning relies on having a person in both the driver and passenger seats.
Using embarks driver only configuration, which we were one of the first explore back in 2020, each TDP trucks will be solely operated by a nice lift driver following an extensive embark training program.
To put this into perspective. This is exactly how we envisioned the industry evolving first attract team as I explained at the beginning next and embark safety driver now a safety driver that works for the carrier and then ultimately know drivers the basic premise of TTP, It's a validated hypothesis.
And as I mentioned earlier, we have hardened and updated our hardware and software to enable this new configuration, which now enables no embark staff into vehicles.
We have increases in stability and the need for monitoring are providing feedback to the driver or the engineering has been greatly reduced.
<unk> can now be done with automatic alerts, which we believe is a logical pathway, having a safe and reliable system that can ultimately operate with no driver.
To support this configuration integration with nights with dispatch system allows their dispatchers to share critical low details directly with Embarq Guardian operation, which allows for more robust remote support.
Finally, as I mentioned, we continue to work closely with Knight Swift to create the maintenance program training, which is the first Avi truck maintenance education program between the carrier and <unk> software providers.
While the initial training is complete we expect this training will be ongoing throughout 2023, as we transition additional maintenance activities Tonight switch and focus on harvesting real world learnings from operating the Embarq driver software in exits commercial fleet.
It's nice we are prepared to receive the trucks, we will continue to run pilot tests on the system as well as take or embark driver training program Tonight with drivers.
In summary today, our competitors are running under their own operating authority pending the trips over to a carrier to own and operate is a significant milestone which illustrates our confidence in the product and the maturity of the system.
This is not a demo or a collaboration where we have engineers nearby to justice system, if something goes wrong, it's truly handing over a product to a customer.
<unk> also further highlights the benefits of our close collaboration with Knight Swift, enabling us to be asset light and focus on building World class software, while leveraging the operational expertise of the largest carrier in the United States.
On slide six I'm excited to go under the Hood on a few of the key hardware upgrades that we've delivered to enhance the reliability serviceability and manufacturer ability of our <unk> system for deployment and commercial fleets at scale.
Setting with the autonomous domain controller, we have been working with one stop systems or Oss, who specializes in building military grade compute and storage solutions focused on reliability and performance.
Through our collaboration OSA to customize the solution for embarks autonomous trucking applications, including attributes such as additional organization. So curious system monitoring and control and dedicated cooling technologies all elements critical to the durability and reliability required for commercial operation of autonomous trucks I would also highlight as I.
Mentioned during our last quarterly earnings call, having partners like Oss enables embarked to be asset light capital efficient and focus on developing high value software solutions.
Regarding sensor integration the hardware up fit for GDP features new individual sensor pause designed as independent assemblies and optimized for a commercial duty cycle.
Each pod is designed to resist harsh environmental conditions at both the sensor and module level.
Besides us are pods include upgraded lighter sensors and utilize the trucks existing near amounts, making installation and servicing more efficient.
Likewise, the lower front sensors are integrated into accustomed bumper element designed to allow easy access to embark sensors, while retaining the service ability of OEM components. This was an important consideration for nights with as part of GDP.
Upgraded hardware modules have been put through significant verification and validation testing campaign to ensure the necessary levels of safety performance and reliability are upheld throughout extremes of shock vibration temperature exposure and more.
We're starting to wrap up system level of ANV testing both of the track and in our internal pilots before handing over the trucks to Knight Swift.
Before moving on I want to give a shout out to the Embarq operations team who've been working around the clock to complete the testing required for GDP.
In the last two quarters, we've completed four times the number of weekly AAV tests versus 2021. This.
This increase in EV test conducted is just one example of how our operations team is focused on accelerating the commercial and engineering progress here at embark turning to slide seven I want to provide an update on our capability roadmap.
Again this is a very consistent slide youll see many time coming into 2022, we had demonstrated 11 of the 16 capabilities. We determined were required to safely commercialize our technology.
At the beginning of the year, we laid out our objective to demonstrate emergency vehicle interactions and invasive maneuvers fifth year.
And then back in August we successfully demonstrated the ability to interact with emergency vehicles on a public highway by completing a routine traffic's up without any driver interaction.
Next up for embarked is evasive maneuvers.
Enabling invasive maneuvers is an important step for commercialization because unexpected things will happen on the road and sometimes traffic steering or braking is required in order to avoid dangerous situations that can be caused by unpredictable actions from nearby drivers.
Happy to announce that we are on track to demonstrate evasive maneuvers by the end of the year, which would accomplish both of the 2022 items on our technology Road map.
In addition, we've also been making significant progress on the remaining capabilities such as inspection, which I'll now talk about on slide eight the.
The traditional trucking inspection process is long presented barriers to operation of 80 trucks. This.
This is because the traditional commercial enforcement system requires all trucks to be able to stop at waste agent and engage with law enforcement, if not granted to bypass which poses a couple of challenges for AB trucking.
First each way station is a unique unmapped and unstructured driving environment, which differs from the on highway environment.
Second roadside inspections that waste agents necessitate driver involvement, which navy trucks could not easily execute.
The solution was to remove the need for way station stop by conducting rigorous Avi track inspection before every trip.
We worked closely with the commercial vehicle safety alliance or <unk>, which represents state law enforcement leaders from across the country as well as leading national fleets to develop an enhanced commercial vehicle inspection standard for AB trusts DVS.
<unk> also developed a training course to qualify carrier technicians to perform autonomous track inspection at carrier terminals.
DSA officially voted to adopt the new standard in September .
The standard will require comprehensive inspection by Cvs, a train technicians before each trip and at least once per 24 hours of truck operation. These back.
<unk> results will then be reported digitally to state highway patrols, allowing all pre inspected tracks to bypass way stations, except in cases, where there is an imminent hazard detected.
This new inspection standard raises the bar for truck safety as 100% of Avi trucks will be infected by Cvs a trained technicians daily to ensure there are no safety defects prior to departure at.
By comparison in the existing process for conventional trucks only a small percentage of trucks received roadside Cvs a inspection and it happens at the discretion of way station personnel.
In fact during an enforcement blips when systematically evaluating the full set of trucks on the highway Cvs. A recently found that 23, 8% of trucks had out of service safety violations. According to their 2022 internal road check results analysis.
We're looking forward to providing more updates on the progress of this important capability in 2023.
Turning to slide nine.
Last week, we launched the coast to coast backbone of the Embarq coverage map, which contains nine transfer point site near key cities across the sunbelt, including new locations in Dallas, El Paso, Atlanta, and Jacksonville to accommodate the freight volumes in key markets and provide operational support for carriers and shippers using embark powered trucks with.
We strategically selected these nine transfer point location to open crucial shipping lines, which represent 28% of U S shipping volume in the Sunbelt for our carrier partners to begin hauling goods autonomously once embarks technology is commercialized.
And the expanded network cover with $9 5 billion miles of annual free, including San Antonio Houston, Dallas, Atlanta, and L. A to Phoenix, which are some of the highest volume the inter city lanes in the United States.
Our partnership with Altera and rider were critical to achieving this milestone, allowing us to secure optimal real estate sites and support services. We leverage these partnerships to accelerate our deployment timeline access superior properties for avs and deliver infrastructure fleet partners, while doing it all in an asset light manner.
Partnering with Alterra has allowed us to access deep industry knowledge, a team providing nationwide coverage a portfolio of over 150 existing properties and fully discretionary funds to quickly identify sites and to structure flexible usage agreements that will enable embark to scale across specific properties and alignment with our networks growing volumes.
Upon commercial launch our carrier partners will be able to operate without the need for driver brakes, which we expect will result in delivery times that are significantly faster than what is currently possible.
Turning to reimburse analysis of government data, 41% of U S shipment miles in the coast to coast coverage map are on lanes that are longer than drivers can complete in a single shift due to hours of service regulations.
Which could be accelerated by an autonomous truck.
Our proprietary patent pending <unk> fusion or BNS technology is uniquely positioned to allow for utilization of the coastal goes transfer point network by our carrier partners.
Minimises reliance on Congress HD maps by integrating real time inputs from embark suite of sensors, allowing the technology to navigate this environment utilizing a light and easy to create and maintain map. This.
This map light approach allows embark to expand to new markets in a way where effort and costs do not scale with mileage.
Wishing the coast. It goes backbone of the Embarq coverage map was the third and final 2022 milestone that we laid out at the beginning of the year and is key on our path to commercialization as it provides our carrier partners the visibility they need to plan their deployment of embark equipped trucks, improving the ecosystems ability to rapidly scale following commercialization.
That I will turn it over to Richard to discuss the financial details.
Thanks, Alex on Slide 10, I want to highlight some of the key financial metrics that support our business progress our cash and cash equivalents were $191 million as of September 32022.
Our free cash flow spend for the quarter was $29 4 million compared to last quarter of $24 7 million I'll provide a bit more detail on the quarter over quarter change as most of this increase simply reflects the timing of cash payments and not an increase in the go forward run rate free cash flow spent which is why we are also reaffirming our guidance for the full year free cash flow spend.
As provided last quarter.
This brings us to our total free cash flow spend for the year to $74 1 million, which is in line with our expectations I want to reiterate we fully expected much of the free cash flow spend to be second half weighted in Q3, and Q4, which is why we are able to reaffirm our guidance for full year 2022 free cash flow spend to be $100 million to $150 million.
And since it's a question we commonly get asked you can think about our current run rate free cash flow spend of around $27 million per quarter, which is reflective of the midpoint of the guidance and as you remember we were able to bring down our original guidance earlier this year of $125 million to $140 million as we continued to adapt to market conditions.
Which highlights the benefits of our asset light business model.
To provide a bit more color. The previously provided guidance earlier this year would reflect our run rate free cash flow spend of around $33 million per quarter at the midpoint.
The actions we took earlier this year resulted in more than half a year of incremental runway, which is why we're very happy with our cash position today, given how we plan for market conditions earlier this year.
When we revised our guidance it was our expectation that we would be in a prolonged market downturn.
This has not changed and we continue to operate and plan as such.
Swift action, we took earlier this year has given us flexibility without can promise being our ability to commercialize the business and deliver product in 2024.
As we discussed during the last earnings call, we want to really flex our plan to extend the runway, but also ensure we have the appropriate teams execute on the plan to deliver on our timelines and the progress. We've made this quarter clearly demonstrate this is exactly what we have done.
I'll provide some metrics on the next slide to show, how disciplined and consistent we've been on a free cash flow spend.
But before moving on.
I do want to talk through the increase in the quarter over quarter free cash flow spend and how to frame that in the context of a run rate number.
Actually there was about $5 million of prepayments related to certain agreements that get paid in Q3 every year, but their expense over the course of the year.
Also we had some incremental expenses this quarter as we began to move employees into our new headquarters, which I should state is really cool when you adjust for these items. We continue to have conviction based on what we know today on the run rate spend I discussed.
Moreover, as you can easily extrapolate based on Q4 expectations, we do expect a higher amount in Q4, hence.
Hence why we reaffirmed our original guidance for 2022.
This also will not reflect a change in the expected run rate, but again, it's simply a timing consideration.
I'll talk more on the next slide around our discipline consistency and focus as it relates to manage the balance sheet, but before I go to next slide I want to summarize the key takeaways here.
Free cash flow spend in full year guidance is in line with expectation to timing of cash payments throughout the year resulted in some lumpiness, particularly in the back half of the year. However, it does not change full year picture our run rate expectations.
And finally, three we believe the current free cash flow spend and ability to focus and flex. The plan is sufficient to advance embark towards commercialization in 2024.
Moving to slide 11, I've discussed our balance sheet discipline, but let me put some metrics that really demonstrate what this means as we've consistently said, having an asset light business model provides flexibility to refine and define the key initiatives, we intend to deliver on based on the resources available.
Is why in Q2, we refined our plan to ensure we focused resources as we assumed a prolonged market downturn.
This chart shows the improvement already realized two quarters into focused hiring initiative, which I'll talk through shortly.
We spent a lot of time talking about focus it is very easy, particularly in markets, where capital is easy to come by to get distracted trying.
Trying to do too much without being able to define the capital required doesn't work.
Exactly what differentiates embarked on this differentiation is even more critical today given market conditions, but goes back to our founding and as part of our culture of being focused.
This is why we've been able to deliver a leading technology and a very capital efficient manner, particularly relative to competitors.
And it's why we feel very good about the resources, we have today to execute on our commercial plans.
The self driving space broadly is beginning to realize its insight certain business models arent profitable sure organizations try to do too much and a lot of money has been spent without a product.
This is not embark embark is deploying capital against high ROI projects that we believe will result in an economically viable commercial product <unk>.
Alex will speak a bit more of this at the end, but I want to really highlight this intersection is not simply a great technology, but a great technology that hasnt actual commercial business plan.
The chart on this page shows effectively our free cash flow spend per employee.
Given the lumpiness of cash payments throughout the year as I walked through earlier I've use adjusted EBITDA minus capex as a proxy for free cash flow spend which we present each quarter on our non-GAAP reconciliation tables.
Summarize the key takeaways here, even as we've grown we've had a fairly consistent spend per employee.
This is important because head count is our biggest spend accounted for approximately 60% of our free cash flow. So this.
This is exactly what you see in Q2 and Q3 after we lowered our free cash flow spend guidance and implemented focused hiring you can see a slight drop in our spend per employee.
Lastly, I would highlight that we ended the quarter 317 full time employees doing the quick math based on the Q3 spend per employee.
Further extrapolate and triangulate the $27 million run rate free cash flow spend number I referenced earlier.
With that I'll pass back to Alex Thank you Richard.
Moving on to slide 12.
I wanted to ask do you have some of the core design principles that led us to identify the trucking use case are continuing to be applied today to ensure a clear path to commercialization in 2024.
While we observed early on was that we knew.
Added to simplify the operating domain and focus on customers with a clear and present need for our technology in high value applications back.
Back in 2016, and Barbara is one of the first players to focus on tracking when others were focused on passenger cars. We made the decision which was controversial at the time because it achieved the objectives that we thought and continue to believe are critical to advancing the technology development in the economically viable manner.
This allowed us to make rapid progress in a highly capital efficient way achieving our first intervention free run between two cities in 2018 with a few dozen engineers.
We were able to achieve this high return on human capital because we took the time to form a view how to commercialize in a focused manner.
Since then as we've continued to develop the system. We've also double down on this thinking and in the subsequent years. We further divided the trucking market into sub segments, enabling us to pull forward the segments of the market. The best met our criteria of a simplified operating domain in high value applications.
To provide some specific examples there are three key divisions, we made within certain trucking tub segments first focusing on the Sunbelt region.
Allows us to operate in primarily good weather, which simplifies a variety of constraints for the initial deployment of our software.
Second pioneering the concept of transfer hubs, which allows us to focus on highway driving and enables us to develop a differentiated technology stack, including technologies like BNS that are highly critical to address the use case.
And third focusing on long haul, which represents the most high value segment of self driving because of its high utilization, but also address macro challenges like the driver shortage issue, which allows our technology to create a lot of value for our customers and ultimately benefit consumers.
As we've always said the best way to advance the technology and operationalized in the commercial setting if your real world experience and this is a critical aspect of GDP. This is also a significant contributor to how we refine and simplify the problem to ensure we're able to deploy a commercial product in 'twenty 'twenty four.
Intelligent data prioritization system, which I described earlier is a great example of the output of these real world learnings.
These learnings are supported the evolution of embark from catching avian charge within our own fleet to transitioning to carrier owned and operated Avi trucks in their own fleets. We believe the next natural step is to demonstrate our ability to have embarked enabled avi trucks operate in an economically viable commercial setting.
I want to reiterate that last point.
As Richard alluded to the self driving industry has slowly followed embark on some of our key early insights.
For example, as I mentioned previously the focus of some players evolving from robo taxi to the trucking market or the focus on the transfer point model.
The key insight of simplifying the problem sits at the intersection of developing a product that can be deployed safely and ensuring that once it is deployed that it can be done economically.
That let me turn to the next slide and speak in a bit more detail how we see this evolution continuing.
Turning to slide 13, as I just walk through embark has a history of simplifying the problem. We started by segmenting the Avi industry into tracking and then further segmented down to lanes and route types and this has accelerated our technology development significantly.
As we now move into the next inning of commercialization and we take stock of the ecosystems progress and our railroad learnings. We realize it is time to continue this process even further by evaluating the trucking sub segments through the lens of the current realities of one our manufacturing ecosystem that is taking longer to work down the cost curve.
<unk>, a macro environment that is requiring tech providers to focus on financial metrics and pull forward commercialization.
The objective remains the same.
Simplify the problem and ensure we address high value customer application.
We have therefore been undertaking an exercise that begins to further segment the trucking market by different market vertical served to uncover sub segments that enable us to further simplify the ODT and most importantly control our own outcome of commercialization in 2024.
We believe this approach provides an opportunity to achieve regular commercial halls on our 2024 timeline I think it's also important to note that in contrast to some of our competitors who are focused on running deliveries that are fundamentally uneconomical.
Want to ensure that when we commercialized we have a sustainable business that not only generates revenue, but also adds compelling margins and a clear path to generating positive free cash flow in.
In summary, I wanted to provide this additional context, which I touched on last quarter on how we're thinking about commercializing our technology under the timelines we put forward.
Active conversations with partners, which I can't share more detail on today, but are excited about multiple opportunities. This will provide for us to have regular commercial deliveries with drive route operations and compelling financial metrics.
The real world learnings from TTP, and our PDP program, coupled with all of our projects completed to date are finally coming together as we chart the path to an economically viable commercial business. We're excited about some of the developments on this front and we're looking forward to sharing more early next year.
With that I'll now turn the call back to Adam.
Thank you Alex operator, let's begin the question and answer session.
Thank you.
Now begin the question and answer session.
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Our first question comes from clean water with Citi. Please go ahead.
Hey, great. Thanks, Good morning, guys.
Maybe we can start with with cash and just sort of getting a sense of how you think the trajectory looks towards that revenue.
Realization in 2020 for Alex that you just mentioned so I think maybe two questions embedded here or do you think that there was sort of the 100 million to $115 million of annual run rate is a good number as we are beginning to think of 2023 and then in terms of the fourth quarter. There is a decent sort of spread between the 101 hundred $15 million in terms of what could happen in.
The fourth quarter, so any sort of help in determining what the factors would be that would get you at the higher lower end, but that number for the fourth quarter.
Yeah, Hey, Chris has gone.
Can talk on the balance sheet first I think I think to your first question. We haven't provided guidance yet for 2023, but which we tried to give you the roadmap or at least how to think about what runway looks like and I think as we've said we feel very good about the team that we have today.
I think that's probably a good place to start and then as it relates to the fourth quarter.
I think we want to continue to reaffirm the guidance that we gave.
And I think you can expect that guidance should be fairly consistent where we expect I think there is obviously some timing things that could change one way or the other but we feel pretty good around the numbers that we provided.
Okay. So just the timing of specific items in the fourth quarter that could sort of accounts. So that's 15 million spread you guys have been running in a relatively tight spreads. So I guess if that is that the dynamics with some timing of things that could either in fourth quarter or first quarter.
Exactly.
Okay. Okay. That's helpful. And then maybe I just wanted to touch on sort of Alex where you left off which was sort of this this.
Use case that could be achieved by 2024, So I guess I'll, just maybe want to make sure that I'm clear on what you mean by that language sounds like youre, suggesting that.
Towards the end of next year and into 2024, there could be a revenue generating case, so I want to start.
And how you think about that I know you can't get into too much detail about specific partners, but maybe a sense of what that might look like and then I guess I'll follow up question would just be on the on the TTP just wanted to get a sense of how many trucks are being delivered.
And if there are any revenue generation opportunities there or if it's going to be solely for testing could you just give us a little bit of color on that so those two items. Please.
Yes.
The last question first there.
The PPP program is going to be a fairly limited number of vehicle.
Really focused on testing I think.
Critical from our perspective is that these will be the first iteration of a real product.
Obviously I spent a bunch of time today walking through.
Some of the important ways that.
It's going to be a lot more mature and it's going to be able to actually be handed over and used in regular operations, but it's not going.
To achieve some of those other milestones yet.
We're talking about the scalability or the driver App. So that's really what we're talking about next as we look.
To what I talked about at the end of the presentation is now that the system has reached a level of maturity where it's ready.
To be delivered as a product.
We're starting to get very serious about.
Making sure that we have a clear path to have that product in the hands of customers that meet those other two criteria.
Ultimately scalable and economical and I think we have a pretty clear path to do that going into 2024.
And just one follow up on that if you if you bear with me here just in terms of the time in terms of production to take it to.
To enable the EUR to work with production line vehicles do we think that that lead time or do you have a sense of what that lead time is how long you need to work with the trucker you need to get the Oems to work with the truck to make sure. There is the ability to deliver trucks in 2024.
Yes so.
This ends up being an evolution over time.
If you look at what we did for TTP I think Thats a pretty good illustrative example, where we started a couple of quarters ago.
Terms of having a brand new OEM platform.
At night with wanting to be ordering on and we will be delivering first start by the end of the year and so a couple of quarters is a pretty good view of what does it take to go from raw never having worked on a platform before to able to deliver our first truck.
That said I think there is.
Incremental work that goes in there right, we're talking about delivering vehicles.
Bye.
Integration.
Level of manufacturing integration was able to go up over time right and so I think as we as we look at driving efficiencies theres incremental time and effort to move that installation up in the supply chain so to speak.
So theres more efficiently done closer to the assembly lines, but if you think about sort of what is the base case requirements to get started on a new platform a couple of quarters is probably.
Pretty good yard stick.
Okay. That's helpful. Thanks for the time this morning appreciate it.
Next question comes from Todd Fowler with Keybanc capital markets. Please go ahead.
Great. Thanks, Good morning, Alex Good morning, Richard.
Alex just sticking with the truck transfer program with Knights.
It seems like Youre on track to deliver the truck by the end of the year. Once that truck is fully <unk> and is immediately operational at that point or are there things that they'll need to be doing on their end and then maybe if you could share kind of whats.
What's the operational range that they'll have with that truck the frequency of new lanes those sorts of things. So just a little bit of kind of once you deliver the truck to them what happens next.
Yes.
Great question.
So.
If you're thinking about what we're doing on our side, we're actually in sort of final stage testing right now until by the time that the truck gets handed over to.
The truckload been through its paces and really be ready to be used immediately.
Final incremental work that we're going to be doing once they had the checking their hand is there going to be going through the same driver training program that we put our drivers to embark.
So is there sort of fully up to speed and I mentioned that we've already gone through training for dispatch areas and poor maintenance staff and so.
That's the first piece is just making sure that all of the staff at night are.
Ready to utilize the vehicles I think it can be a really important piece of the learnings and the work we're doing with TTP.
And then following that it's going to go into their regular operations and do regular commercial loads on one of the highest volume.
Knight Swift lane that they operate.
So it was pretty quickly go into regular service and I think one of the.
If notable and important pieces here is that we've been targeting the same.
Duty cycle as the other trucks in our fleet.
And so when we think about what is the maintenance cycle. What is the number of runs per day. What is the overall availability of all of this will be consistent with.
The other vehicles they are running.
And I think that's really an important objective that we set out for.
Putting together the TTP.
Yes, thats, great and Thats just helpful. Just to think about kind of the next steps beyond when your turnover the truck.
With the announcements I think it was.
Earlier this month about the nine new terminals in the expanding the network.
Can you can you maybe provide some context I think that in the presentation today. It talks about multiple pilots with PDP partners.
What is the scope right now if theres anything you can share either number of trucks number of partners that are currently utilizing the expanded network. Just just kind of any sense of scale would be helpful for where you're at with the network at this point.
Yes, I would say that the way to think about the network. At this stage is really focused on allowing our partners to plan for the future.
The if you look back at the.
14200 reservations, we have through the PDP program.
One of the important commitments that we made to those partners.
Is.
To use those reservation rollout plans that we develop together with those management team.
To be able to really lay the groundwork for them to be able to deploy the vehicles at scale and so.
We have been.
Working with our partners and running load through the site.
But I think the bigger and more important.
Roll that they serve is to really be able to provide clarity on what the rollout is going to look like.
In commercialization and how.
Those partners can think about what percentage of their existing lanes and run.
Are they in a position to be able to bring online.
In the medium term.
Okay that makes sense I got that.
And then Richard I think you've been clear on this but I just wanted to just spend one more moment on it it sounds like just the message here is that the rough baseline for cash burn is around $27 million per quarter, but there'll be some variance around that based on timing of working capital or payments. It sounds like second half of this year, maybe a little bit.
But it sounds like just for planning purposes, and understanding that youre, not giving guidance for 'twenty three but it seems like you're kind of pointing us to thinking about that $27 million as being the baseline is that the correct message that you are providing today.
Yes, I think that's a good assumption.
Okay. Good thanks for the update today and all the additional information on the call here. This morning, Thanks a lot.
Next question comes from Jeff Kauffman with vertical research partners. Please go ahead.
Thank you and good morning, everybody.
Alex Rich team I just wanted to thank you for all the clarity in your slide presentation and congratulations on the achievement of milestones.
I'd like to follow up on Todd's question on the nationwide network.
The one thing that you've made very clear as youre not a build it and they will come.
Company necessarily but when you do things it tends to be driven by customer.
Discussions and customer requests so with that in mind.
You're testing. This this nationwide network concept with your PDP partners. What are you being asked to do today that might be a little different than what you were being asked to do say six months ago by your partners.
Yes, it's interesting question.
One of the things that I would highlight about.
The coast to Coast Network is I think this is a really.
Hey, I really useful demonstration of an <unk> asset light approach here.
We're embark.
Is able to bring these sites online.
But without going out and buying a bunch of physical facility and in fact, we have a lot of flexibility to scale up and scale down the actual footprint on many of these sites and because of our partnership with Altera and so what we've been able to do it.
Capital efficient way and get access to these sites bring them on in the form of leases and then have the flexibility to be able to adjust.
Just the scale of those site to match demand as it as it.
Sales up and so I think that.
It has been something that's been really well received the.
The next push I think for.
For these for the coverage map is really going to be starting to talk to customers about.
So we typically talk about east coast to coast coverage map as the backbone and I think that it serves a really important purpose as the backbone to be able to give all of these carriers access to important market.
But the thing that we're now hearing.
Is people are really starting to think about how can they they go above and beyond that in delivery.
A more specialized product that gives them even more value.
That means we're starting to talk about.
The potential to bring private site into the coverage map.
And I think Thats, an area, where embark again really differentiates ourselves from some of our competitors, who want to be sort of owning their own physical infrastructure.
Okay. Thank you and then just a follow up.
One of the things I found interesting was to talk about all of the sensor upgrades.
Slide that you had on that and I think many of US are focused on okay, let's see the timeline for solving these.
Additional three cases in kind of the timeline to commercialization, but to your point.
Whether it's a sensors, whether it's the technology, whether it's the software behind it.
Theres upgrades consistently going on.
With each iteration of what Youre doing so I guess my question is.
We've talked about the the.
The use cases.
One of our technology.
Technology or hardware.
Opportunities that are out there that would make a.
A meaningful difference in the product to customers you still haven't had a chance to get or maybe the technologies, where it needs to be but what are some of the big opportunities on the hardware technology side as opposed to.
Say road triangles inspections, while in tires.
Yes, I think the biggest opportunity.
For hardware at this stage are actually really starting to become fairly iterate it.
So we're quite happy with the capabilities and even if you look at sort of what we talked about for the the upgrades we made for TTP.
In many cases this wasn't the topline spec sheet that were changing rather it was.
The reliability.
In 10 cases of pricing.
The serviceability.
And Thats really where we start looking at at those improvements. So I wouldn't say, we're necessarily looking for big step changes in performance.
But really taking.
A couple of years ago, cutting edge performance and starting to see it become more commoditized lower price better better reliability and performance.
That's really where we.
We see the opportunities.
And I think that's really going to push the industry forward.
Okay, Alex Thank you and.
Congratulations.
The next question comes from David Vernon with Bernstein.
Go ahead.
Hey, good morning, guys and thanks for the presentation today.
Alex can you talk a little bit about.
The TCP program as you move from one driver to embark to Knight driver.
What's the commercial relationship there or are you guys still going to be BBB licensing the technology at that stage I'm, just trying to get a get a sense for how we go from two to embark drivers to one of our driver. Its a one night driver. So eventually one eventually no driver.
When does it when is it that we should expect the meter to start ticking as far as kind of licensing the technology.
Yes, so the way to think about this is.
I think there is that that really big shift.
Trucks, they're owned and.
Outside of the one Ryan are maintained operated well sort of fully.
Under the operating authority.
Asos driving company.
And here.
Even when we talk about the number of trucks that embark has we're not even counting the TTP trucks, they're not our trucks.
No trucks that are owned by nice lift.
And we are.
We're working on the integration and the upgrade store.
But that are not embark traffic and so I think that's a really.
A meaningful difference in that upstream of all of the changes in staffing and that does it and moving to two Knight Swift drivers.
I think that in this initial phase the way that we're really thinking about the value creation.
<unk> is similar to if you think about how an electric vehicle gets deployed you have a.
Very small number that are getting.
Put into the fleet early so that they can go through their paces they can demonstrate.
Maintenance interval is performing uptime.
And Thats the final stat for fleet to really get comfortable to then be able to buy them and in much larger volumes. So.
The.
The initial pilot deployment.
Any guidance to give on sort of when we would see that then you start running there I think that scale is going to be small enough.
But this is really more about.
The learnings and the progress towards being able to scale that up.
And could you maybe comment a little bit on your conversations with light in terms of what their process would be for making that decision then within the TTP program to take the driver out.
Just wondering like how long does this how long does this trial and.
Sort of deeper sort of testing in my my own trucks, if I'm a trucker.
How long is that how long does that stage for last you think.
Yes, the way that we think about this is that.
This is going to be and the TDP trucks themselves are designed for the 2023 testing phase.
And then drive it is something that will occur as part of commercialization in 2024.
But as far as kind of night sort of thresholds for when they might make that decision because obviously when they think their driver out in its their hardware then theyre going to be LIBOR. It.
The liabilities are pretty complex question, but obviously it takes their safety and their authority extremely seriously and so has it really high bar for this Scott.
I think that's exactly why at ETP is there is for them to be able to.
Kick the tires, so to speak and see the trucks up close and personal I think.
One of the things that they asked us for and sort of part of the reason that the TTP program exist.
Is.
I think a lot of carriers had been in in demos, where they've seen a truck run for a handful of ours.
And in order for the NDA comfortable they really want to be able to see the system performance over a much longer period of time right and so I think that's one of the reasons why it's notable that its night drivers in these truck.
For us demonstrates a level of confidence that decision is going to be performing day in and day out for a night and represents one of the most important things that are going to be looking at is talking to drivers and looking at the actual performance level that they see over an extended period of time.
Alright, Thanks again.
The next question will come from.
<unk> came up with.
B Riley.
Please go ahead.
Hi, guys kind of piggybacking on the last question there.
How long does the training program take with the Knight Swift employee before they can be in the vehicles.
Yeah. So so we've already spent a lot of time.
Getting this getting this kicked off and working with different parts of the night to adapt those they were pretty far along.
The training program is a handful of weeks to do that final step.
Where folks are going in and really learning the specifics of how to interact with them.
And Chuck that self driving system installed.
Okay, Great and then just one more from me.
So in terms of overcoming.
Alright.
What would be the biggest issues.
In terms of overcoming road triangles inspections and blown tires.
Where do you expect to be held up on those initiatives.
Do you expect to hold ups at all.
Yes, I think.
Each of these is a significant and challenging.
A significant and challenging milestone that that's going to require a meaningful amount of work.
I would say that we feel very good about our position on all three I think going into next year.
Been a lot of progress.
Some of them that we've talked about on these calls some of it but we haven't had a chance to talk about yet.
But we have Ah.
Pretty good line of sight too.
The key pieces that need to go into place for each of these next year and so I think we're feeling pretty good.
About our ability to execute on all of them.
Okay. If you could like could you give us any tangible examples of the key pieces.
So I mean, I think a great example.
On the inspection side.
One of the biggest inputs to the inspection solution was having.
A clear direction from the regulators as to what would be an acceptable solution that.
The guidelines without needing to pull into a station performed level on infections without a driver at present.
And I actually talked about this on one of the slides.
So two months ago back in September .
The work that we have spent in <unk>.
<unk> of years with Cvs.
Paid off and endorsed basically a set of procedures.
It would allow a driverless truck to be inspected at the transfer point and the 19th December the way station and so we have pretty good line of sight, there now too okay to.
Procedures have been approved and there is work to be done in terms of both implementing.
Implementing the technical pieces to be able to actually get the bypass.
And there is work to be done in terms of training program and that getting rolled out across states.
But as far as the.
Coming up with a solution and getting it endorsed by the regulators thats pretty much done at this stage and so it's a matter of execution.
That's probably a pretty good example.
Perfect. Thanks for taking my question.
There are no further questions at this time. This concludes today's conference call. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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