Q3 2022 Sarcos Technology and Robotics Corp Earnings Call
Yeah.
Good day and thank you for standing by welcome to the third quarter 2022 circles technology and Robotics Corporation earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
One on your telephone you will then hear an automated message advising your hand is raised please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today than <unk> head of Investor Relations. Please go ahead.
Thanks Amy.
Good afternoon, everyone and welcome to the socket.
Joining us on the call this afternoon.
Listen Chief Executive Officer.
And Chief Financial Officer.
People will stop.
Recent events.
Andrew will then talk in more detail.
As a result, he will take questions.
Before we begin today's call will contain forward looking statements, including statements concerning future commercial availability.
Market trends revenue call.
Yeah.
In addition, any statements about future performance related to our acquisition of ours.
Clearly our expectations regarding the benefits we achieved the financial performance of the combined company.
Each of market revenue.
Integration plans and other statements regarding the combination.
Okay.
These statements represent managements beliefs and expectations as to future events.
But there are many risks.
Cause actual results to differ.
Among those risks and uncertainties are those described in our Form 10-Q filed today with the SEC.
And in today's earnings press release.
We encourage you to review the risks.
Describes in this press release.
Yes.
Further information regarding the actual and potential risks.
We also encourage you to review the special note regarding forward looking statements included in our earnings release.
Yes.
Our 2002 in each case filed with the SEC.
Posted in the investors section of our website.
And on the SEC's website.
In addition, we will be discussing certain non-GAAP financial measures.
Throughout this call all financial measures will be GAAP, unless otherwise noted.
A reconciliation of any non-GAAP measures to the most directly comparable GAAP measure as well as the description limitations and rationale for such measures are included in the earnings release filed with the SEC. This afternoon, and which is available on our website and on the SEC's website.
A recording of this call will also be archived on our website.
The information that we're giving you on the call. It double today's date and we undertake no obligation to update that information.
So thanks again for joining us at this point I'd like to turn the call over to our president and CEO .
Thanks, Ben Good afternoon, and welcome to everyone joining us on the call today.
The third quarter has been one of milestone celebration and significant product and market development for circuits, but before I update you on the third quarter I wanted to welcome drew Hamer to his first start post earnings call I'm delighted to have <unk> onboard as our new Chief Financial Officer.
<unk> has over 25 years of financial leadership in the high growth technology World is led teams at companies such as Dell down later on 24 and Siemens.
His experience and skills will be invaluable as we work to bring our product to market. So welcome to the surface damages.
Following my remarks on the quarter two will provide the financial update we will then open up the call for questions from analysts.
During the third quarter Sarcos celebrated the one year anniversary of our public listing on the NASDAQ global market.
Celebrate this milestone I was honored to stand alongside our co founder and executive Chairman and more as we rang the NASDAQ opening Bell on July 25th for me. It was a real delight their team members their families and especially our products on the NASDAQ tower at times square and it reinforces the importance of our mission to improve worker safety productivity through.
Robotics.
During the quarter, our engineers and development teams, we are in the field with partners and customers demonstrating the capability of our robotic system. One of the most involved and demanding field tests with our participation in the navy repair technology exercise or Raptor.
This took place.
California.
Over almost a week four sarcos robotic systems were put to work. These included the <unk> version of our Tele operated extra robots. The Guardian Dx the sapiens <unk> sapiens C class. We also demonstrated the capabilities of our remote visual inspection robot regarding that.
Our robotics systems required to take on various job, both on and off shift including at dock on ground at heightened underwater.
A critical part of this exercise is the element of surprise to demonstrate the field readiness of each robotic system. The team was required to execute previously unknown job to validate the agility of our robotic system.
<unk> carried out jobs, including rescue paint removal at height of shops, who laser ablation plasma ablation and cold spray tool.
Sapient C class perform tests underwater, including infections and object retrieval.
Successful execution in the field is vital as surplus continues to design and develop robotic solutions for unstructured environment.
This is especially critical as they integrate field experience back into the product design, our roadmap and prepare for commercialization of Guardian next T Sapient system and C class products.
Although the field trials took place on Navy property and the Navy is a valued partner circus the jobs that a robotic systems executed are applicable to work done on commercial ships and a commercial shipyard throughout the U S and across the globe. We believe our first robotic systems can play a huge role in the development of commercial shipyard.
<unk> also provided a perfect opportunity for the first field test of our combined product line, our newly integrated one sarcos team.
Best of the best in Salt Lake City, and Pittsburgh to ensure that the navy requirements and the dirty and dangerous drop were executed collaboratively.
Oh, yes.
Similar collaboration has been taking place across the business as we successfully completed the integration of several IC and HR system and standard operating procedures, eliminating many of those initial integration pinpoints and creating synergies across the two locations.
There's more work to do of course, but we just celebrated our six month anniversary as a combined company and I'm delighted by how much we have achieved and the opportunities in front of us.
As I, usually do on these calls I'd like to give you an update on the development of our combined product line and where we stand on the path to commercialization.
Our expanded product line now comprises of three different offerings.
The first of these is our range of Tele operated robotics system. These solutions are designed to allow us to use robot to undertake tasks and unstructured environment in many cases, such environment put people at risk of injury or acquire them to undertake these extra costs that are difficult or important.
Using color operation in past economy, our product can retain the skills and dexterity of the human worker and allow them to be deployed mistake or location.
The first of these solutions.
Pick them system is an intelligent robotics solution capable of control by both co operation and supervised autonomy. The other tell operated solutions with our Guardian.
Which is designed to have more of that study and it's in the sector and also do you expect to see equipped with capabilities supervised autonomy.
I'm happy to let you know that we have completed the final build of our pre commercial system of the Guardian and have allocated these units for additional customer engagement.
<unk>, our manufacturing readiness and reliability testing as we prepare for initial production commercial system and commercial buildings.
We continue to expect to start initial production of commercial system, but the Guardian Z at the end of this year to be available for delivery to customers in early 2023.
I am equally is delighted to be able to tell you that we actually began production of the commercial system units ahead of schedule in the third quarter. Beginning production ahead of schedule, a real Testament to the hard work of our entire team and demonstrates the energy and commitment of everyone.
To bring the workforce of the future for us.
Potential customers continue to expect strong demand for commercial versions of both of these products and we believe initial customers for our <unk> operating system.
Most likely come from shipyards aviation and vegetation management industry.
In addition to protect them Sapient line also includes the C class, a one or two arm highly dexterous robotic system suitable for complex on the water environment.
C class can be used for commercial applications industrial path of military operations and reduce the need to put diapers in the water and explored that are unsafe for him.
Inspection of Sept underway for oil rigs of Oxford and from many other use cases, we believe the potential demand for robotic system.
C class, which was based on merck's picked up two hours and operate autonomously or vehicle operation.
Okay.
The second product line is the powered full body exoskeleton, the Guardian, XO, which will be a strengthened productivity multiplier designed to eliminate the T and injury.
Continue to make advancements in the development of this groundbreaking.
During the quarter, we implemented a new piece of control architecture impossible that improves the accuracy of responsiveness, the arms and legs by including a new development called deepwater control.
This leverages the power of predictive model into the way the motor insurance behavior and enables faster more accurate responses to different between request infection. These changes will not only benefit that can be implemented in the guardian equity and stay consistent.
The third product line as our supervisor economy software as a service capability, which we intend to offer additional services to customers of our robotic system.
Therefore, depending on the product our commercial production timeline expectations are ahead of or unchanged from the guidance. We gave on our last call, but we continue to see challenges on these expectations and supply chain constraints and the availability of skilled employees, both in house and that development partner.
As part of meeting our projected timeline is a core focus as we firmly believe that there is a significant unmet demand for the products that we're about to bring to market. We also believe that this demand is growing consistently and several new areas.
One critical examples availability of workers to fill positions and growing segment of the noble energy.
The inflation reduction act was signed into law on August 18.
Other measures the act authorizes a significant funding and incentives for U S companies to enable decarbonization of the power grid with the ultimate goal of moving to the U S, 100% carbon emissions free electricity by 2035.
This is a significant development for the clean power industry and companies like purpose that aimed to provide the tools to assist with this.
Transaction.
The decarbonization of the U S economy is a massive undertaking and will require significant investments breath with estimates of public and private climate spending could total $1 seven trillion over the next 10 years.
One of the challenges faced in the power generation industry is a lack of workers to undertake the installation of new generating plants like Florida.
Commercial solar farm installation is hard work and often takes place and then hospitals in most locations.
Finding a sufficient workforce complex solar installation of significant problems in solar installers.
The number of people employed by the whole industry fell significantly during the pandemic and Havent Department in order to meet the target of a 100% clean electricity generation.
The solar industry is expected to have a 900000, new position a 380% increase on the number of people employed by the industry today.
For an industry that has already impacted by hiring challenges this will be difficult if not impossible as a result, our installations.
Missions that improve the productivity of workers and make an appointment in the fields more desirable.
In 2021, Iceberg began working with the department of energy on a program to develop a system deliver and PV possible, but fundamentally we have made tremendous progress in this area. We are increasing our efforts given the significant opportunity. The renewable energy segment is just one example, whether it's solar wind.
Marcos is focused on bringing to market robotic systems that allow customers to do more with less.
This is just one area of developing demand we continue to be focused on aviation work at height and construction.
I'll end it there for now but before I do I'd like to thank the entire 280 <unk> team members for a job well done this quarter. Some of the integration work was disruptive as we move through the quarter, but we adapted and we moved forward and the progress achieved a significant.
To meet our product development timelines with a huge accomplishment, especially given the supply chain challenges and more protect nickel counter I am extremely proud of the team that despite these external challenges we are still on target to start initial production of <unk> by the end of the year and ahead of schedule on the.
System commercial units the team did so by living up to our core values Trust respect and teamwork.
Our offering it thank you.
With that I'll turn it over to drew for his surplus earnings call debut.
Hello, everyone I'm drew hammer, it's an honor to be speaking with you today and thank you keep it for the warm welcome.
I'm delighted to be joining the Sarcos team, obviously I'm relatively new to the business and there is a lot for me to get my arms around him or her struck me. So far is just how much knowledge and enthusiasm there is throughout the company with the transition to commercial availability of our products.
I joined Sarcos to help make a difference to the world of work and to bring products to market.
Wait to start doing that.
Peter just outlined the excellent progress the business made during the third quarter.
I'm now going to update you on the numbers behind the business performance.
This afternoon, we released our third quarter earnings and filed our 10-Q.
Please note that our results for this year include the financial performance of RV square from the close of the transaction on April 25th.
The 2020 are owned results do not include results from Ari square.
Now turning to the actual results.
For the third quarter of 2022 quarterly revenue was $4 $7 million.
Compared to revenue in the third quarter of 2021 of $1 1 million.
This increase was primarily due to the addition of revenues from Ari square following the acquisition.
The primary impact to revenue was an increase in revenue from research and development services to $4 5 million in the third quarter.
This was an increase of $3 $8 million, a comparison of third quarter of 2021.
We expect future R&D revenues to continue to be higher year over year in the near term.
But our focus on accepting only those development contracts that are aligned with our product commercialization efforts may cause these revenues to fluctuate over time.
Revenue derived from product sales in the third quarter was $179000 down from $435000.
Over a period of 2021.
All product sales in the current and prior year periods were related to sales of our Guardian and.
And <unk> products.
As we have mentioned before.
Are these legacy products are not expected to form a material part of our revenue in the future as we focus on the commercial launch of our Guardian XD sapiens <unk> sapiens C class and Guardian XO lines.
Total third quarter operating expenses were $31 $9 million down.
Down from $41 6 million in the third quarter of 2021.
This decrease was primarily due to a $21 $9 million decline in stock based compensation expense.
The comparative quarter in 2021 reflected the impact of stock grants that vested upon the closing of the business combination last year.
General and administrative expense was $14 6 million in the third quarter.
Representing a 57% decline from the equivalent period in 2021.
This decline was due primarily to the reduction in stock based compensation.
Offset in part by the impact of increased head count and related expenses following the RV squared acquisition.
Research and development expenses increased by $6 million to $10 5 million in the third quarter.
This increase was driven primarily by increased head count from the addition of already squared driving related expenses higher as well as increased third party service provider costs focused on the development of our cardiac.
Sapiens, <unk> and Guardian XO products.
Sales and marketing expenses for the third quarter were relatively flat on a year over year basis with the current year expenses of $2 4 million.
Lastly, the company incurred $800000 of intangible amortization expense in the third quarter of 2022 due to the recognition of amortization expenses of certain intangible assets with definite lives that were identified as part of the <unk> acquisition.
Excluding stock based compensation expenses, we continue to expect year over year increases in G&A, R&D and sales and marketing expense for the remainder of the year as we work on the commercial release of our products next year.
Public company compliance efforts and incur additional costs relating to the acquisition of RV square.
During the third quarter, we booked a $1 $5 million benefit from the change in the valuation of our warrant liability as well as a deferred tax benefit of $2 $5 million due to an adjustment to our previously recorded valuation allowance, resulting from the acquisition of Ari squared.
Our third quarter net loss on a GAAP basis was $22 5 million or <unk> 15 per diluted share.
Down from a net loss of $37 million were <unk> 35 per diluted share in the third quarter of 2021.
As we have noted on previous calls we are required to report the change in the value of certain of our warrants on our statements 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 volatility into our earnings each quarter until the warrants are fully exercised or expired and will make it difficult for us to forecast effect of warrant accounting on our financial statements.
Excluding stock based compensation expenses changed.
Changes in the value of our warrant liability.
Certain other items related to the closing of the acquisition of Ari square, including the deferred tax benefits, our third quarter 2022, non-GAAP net loss per share was <unk> 12.
Excluding the same items from the third quarter of 2021.
Our non-GAAP net loss per share was <unk> <unk>.
Our earnings press release filed this afternoon contains a full reconciliation of the non-GAAP net loss calculation.
The fully diluted weighted average number of shares for the quarter was $150 9 million.
As of October 28th our outstanding share Count was $154 7 million.
During the third quarter, our monthly cash used in operating activities was $16 5 million.
For an average operating cash burn of approximately $5 $5 million a month.
In addition, we used $1 $1 million during the quarter to pay tax obligations related to the withholding of shares upon the vesting of equity awards.
Overall company inventory increased by $1 $3 million during third quarter, which included the purchase of approximately $1 million of.
Of parts and components related to the 2023 production of our commercial systems.
As a result of these expenditures our unrestricted cash cash equivalents and marketable securities totaled approximately $135 four.
$4 million at the end of September .
We continue to believe that the cash we have available as of today will be sufficient to enable us to continue initial production.
Commercial systems of our SAPIEN <unk> robotic system and began initial production of our Guardian XT Tau operated robot and meet other operating needs for at least the next 12 months.
As we guided previously our quarterly cash burn has been more heavily weighted towards the latter part of 2022 as we prepared for the commercial release of our products and made investments in that process.
We continue to expect this trend to hold true in the fourth quarter and anticipate that our monthly cash burn from operations will average approximately $7 million.
This number includes lump sum payments that are only expected to impact the fourth quarter.
In addition, we anticipate an additional total quarterly impacted cash of approximately $1 million to pay tax obligations related to its holding of shares upon divesting of equity awards during the same period.
The stock related cash impact is not expected to continue at the same rate in 2023.
I mentioned earlier in my remarks, do we have pre purchased approximately $1 million of materials and components for the manufacturer of our commercial systems next year.
We continue to estimate the total impact for 2022 cash burn for these purchases will be approximately $3 million.
We now anticipate that our full year revenue for 2022 will be between $13 million and $15 million.
This revenue forecast is slightly lower than the guidance. We gave in our last quarterly call as the delivery of services on certain contracts is expected to move from the fourth quarter into Q1 of 2023.
While we are still confident of ultimately realizing this revenue the availability of key technical staff. Both in house and third party providers continues to be a concern and as a risk to our ability to generate revenue in the near term.
That concludes.
My remarks on the financial performance of the company on.
On a personal note I would like to thank kiva and the rest of the circus team for making me feel so welcome over the past few weeks.
Many of the team at personal ready and I look forward to meeting the rest of the team very soon.
Sarcos has the technology and opportunity to transform the way physical tasks get done and I joined the company to help take full advantage of that opportunity.
I look forward to continuing the positive momentum that we all achieved in the third quarter.
We will now open the line for questions. Operator, Please will you repeat the instructions to ask a question.
Sure.
As a reminder to ask a question you will need to press star one one on your telephone.
Standby, while we compile the Q&A roster.
Okay.
Yes.
Our first question comes from Brian <unk> with Jefferies. Your line is open.
Quick question around the supply chain in prior quarters, you mentioned the lack of component availability delayed the development of Dx. So next two units is that largely behind you and do you have a clean path to commercialization now.
Great question. Thanks.
So I appreciate you joining.
As we've also mentioned in previous calls we have done a lot of pre purchasing that's just also noted by drew so we do have nice solid line of sight to commercial aviation and product production for the two targeted projects.
Okay.
That doesn't mean, clearly don't have a crystal ball, but as of right. Now we really have put a lot of effort into making sure that we have all the preproduction parts required.
Understood and a quick follow up you laid out a variety of end markets and industries that could benefit from psychosis product.
Any of these initiatives have customers that are currently testing either VX or XT and have we seen any orders from them.
Yes, great question.
We're very focused as you know a laser focus on the aviation market. So as we communicated earlier, we've been infield and testing new trials and trial.
Which is part of our development cycle. So if you remember as you walk through that process. Typical first step is making sure that we have proof of concept and then that drives to commercial trials. So in the segments that we've highlighted vegetation management at height.
The important construction in aviation those are where we're really focused right now getting to those commercial trial.
Understood. Thanks, I'll pass it on.
Thank you one moment for our next question.
And our next question comes from Guy <unk> with Credit Suisse. Your line is open.
Hi, good evening.
Hey, guys.
Hi.
Can you expand a little bit on the <unk>.
Comments regarding the contract manufacturer.
And how that's kind of.
Carries with the kind of long term gross margin guidance I mentioned that are ramping the contract manufacturer had some impact on the profile of gross margin.
Exactly yes.
<unk>.
Identified our contract manufacturing partner they've been onsite, we have been ramping they've had their technicians on actually really helping you provided some great input and insights on how we can scale more quickly, but you are correct.
But as the manufacturer care on Prem that does have an impact on gross margin, but as we grow and scale. Our hope is that with the kind of contract manufacturing partner.
<unk>.
Increased scalability, which clearly will impact gross margin.
Just as a follow up obviously you.
You've begun commercial production of the <unk> six <unk>.
So in terms of numbers of units you're building an inventory there and that.
That suggests you have confidence in making sales and at least not in the next month few months sure I am understanding that correctly.
That was.
Drew I'll take a stab at this one so as Kevin mentioned earlier there is a sales process that we go through sleeves up two and includes what we call field trials.
Field trials is one of those kind of last two or three steps before we get to that commercial contracts with customers.
As those.
Pipeline has formed and a number of these different industries as Keith alluded to earlier.
So the production of these units is now in anticipation that we should see some contracts closing, but we cant announce anything until we've got an assignment and so we'll continue down. This road we are but we are.
Advanced purchasing components you were building the units and we're looking forward to some successes.
<unk> continues to fill.
Back into the funnel as well as the front end as well.
Great. Thank you good luck for the rest of the year.
Thank you.
And Im showing no further questions at this time I would now like to turn the conference back to Kiva Allgood for closing remarks.
Thank you Amy I hope they update today, how would you as excited about the future of Sarkis as we are.
Our expanded portfolio.
We've begun to began manufacturing our first commercial robotics system redefine luma possibilities, while enabling the safest most productive workforce usual. This is a huge milestone for the <unk> team and looking forward to sharing more with you guys.
Later in the year.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly.
As Johan during Q&A, you can dial one one.
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