Sarcos Technology and Robotics Corporation Q1 2023 Earnings Call

Speaker 1: You you F.

Speaker 2: Good day and thank you for standing by. Welcome to the Sarcos first quarter 2023 conference call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone.

Speaker 2: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mariah Shilton. Please go ahead. Mariah Shilton, please be advised that today's conference is being recorded.

Speaker 3: Thank you, operator. Good afternoon, everyone, and welcome to the Sarcos Technology and Robotics Corporation first quarter 2023 earnings call.

Speaker 3: Joining us on the call this afternoon are Surface President and Chief Executive Officer Teva Allgood and Chief Financial Officer Drew Hamer.

Speaker 3: Keba will start the call with a discussion of business highlights from the first quarter and recent events.

Speaker 3: And Drew will then talk in more detail about the financial results before management takes questions from analysts.

Speaker 3: Before we begin, we must state that today's call will continue for looking statement. Including statements concerning future commercial protection availability of our products, product features and capability.

Speaker 3: target markets and market trends, size and expectations.

Speaker 3: Culture demands and future financial results, condition and cash flow, including revenues, cost and liquidity.

Speaker 3: In addition, any statements about future performance related to our acquisition of RA2, including our expectations regarding the benefits to be achieved, the financial performance of the combined company, integration plans, and other statements regarding the combination of the two companies are forward-looking statements.

Speaker 3: These statements represent management's beliefs and expectations as to future events as of today, but there are many risks and uncertainties that could cause actual results to differ from what we have projected.

Speaker 3: Among those risks and uncertainties are those described in our report and form 10-2 file today with the SEC and those mentioned in today's earnings press release.

Speaker 3: We encourage you to review the risks and uncertainties described in this press release. In and out of filings with the SEC, the further information regarding these actual and potential risks and uncertainties.

Speaker 3: We also encourage you to review the special notes regarding floor-lift statements, including in our earnings release, and 10-2 for the first quarter 2023. File with the SEC Vs Acta-Nune, and which will be posted in the investor section of our website at Circus.com and on the SEC's website.

Speaker 3: In addition, we will be discussing certain non-dap financial measures on our call today.

Speaker 3: Throughout this call, all financial measures will be passed unless otherwise noted.

Speaker 3: Reconciliation of any GAT measures to the most directed comparable GAT measures, as well as the descriptions, limitations, and rationale to such measures are included in the Erning for these by with the SEC this afternoon, which is available on our website and on the SEC's website.

Speaker 3: A recording of this call will also be available on our website until June 9, 2023.

Speaker 3: The information that we're giving on this call is as of today's date, and we undertake no application to update information subsequently.

Speaker 3: At this point, I'd like to turn the call over to Kiva All Good, President and CEO of Circo. Kiva?

Speaker 4: Thank you, Moriah. Good afternoon and welcome to everyone joining us on the call today. As you saw on our press release, we are gaining revenue momentum from our product development contract as we push toward initial commercial production sales in the coming quarters. Now that some of the gardening and family of products are available for sale.

Speaker 4: We have been able to get products working out in the real world. And we expect commercial product sales to ramp up in the second half of the year and grow from there.

Speaker 4: We're excited about our recent manufacturing agreement with Jable and as demand for the Guardian Family of Products grows, this relationship will allow us to grow beyond our initial production capacity of three to 500 units per year.

Speaker 4: In March, we attended Connexbo, the largest construction equipment trade show in North America. There was tremendous interest in traction at our booth, as we began engagement with more than 70 companies who are speaking with us about how our robotic solutions could help improve their productivity and safety.

Speaker 4: And they could see firsthand how impactful agrarian products can be as we perform demos of the XM and XT doing semi-assonomous and teleoperated work at height, such as laser-oblation, grinding and cutting, all tasks required in surface preparation, shift building and construction.

Speaker 4: which we believe represents a large market opportunity for Sarcos.

Speaker 4: Over the week-long event, we demonstrated how our solutions, which include hardware, software, and components, improve productivity while keeping workers safe from dangerous working conditions. Seeing as believing when it comes to service solutions, and even in the rain, the team executed and performed well.

Speaker 4: Now that our products have come to life, we have been actively on the road at industry shows and events and our focused verticals. In April , Sarkoost took part in the Aviation and Robotics Summit a three-day invitation only series of workshops, site tours, networking that brought together aviation and robotics industry professionals and experts from around the world.

Speaker 4: The goal of the summit was to solve aviation business and operational challenges with robotic solutions and advance the industry's focus on improving the travel experience.

Speaker 4: Yorgon Pederson, our chief operating officer, participated in a panel with Delta Airlines and the CEO of Pittsburgh International Airport to discuss how robotics are critical for the growth of the aviation industry. And we were thrilled to host more than 60 summit attendees at our Pittsburgh headquarters where we conducted demonstrations over robotic systems and solutions.

Speaker 4: and spoke about the many aviation specific solutions we have to offer.

Speaker 4: All attendees were able to see our baggage handling solution as well as the Guardian XT inspecting an airplane fuselage and we received very positive feedback from the aviation industry leaders.

Speaker 4: We had another opportunity to demonstrate our robotic solutions last week in Houston at the Offshore Technology Conference and Exhibition, where energy professionals exchange ideas on offshore resources and environmental matters. We formally announced our partnership with VideoRay at the OTC show, and we demonstrated how our Guardian C-class can be retrofitted onto their underwater systems.

Speaker 4: remote operated vehicle. We bring human-like dexterity to video-raised marketing inspection class ROV by adding arms and hands.

Speaker 4: Now it can do complex, sub-C jobs such as ship maintenance and salvage. It was a great opportunity to promote the Guardian C-Class as well as our important new agreement with Video Ray. The underwater robotics market is growing 13% a year and is expected to be 2.4 billion serviceable, just-whole market globally in 2024.

Speaker 4: In addition to industry events, we have been doing on-site customer testing to ensure our system performs as intended, are durable and that our software solutions meet the customer's specific needs, putting us at a critical step closer to product sale.

And as I mentioned on our last call, we completed the final validation in our product development contract for our robotics solar field construction solution to help an industry facing labor shortages, increased productivity while reducing installation costs. We're also on track to achieve ISO 9001.

steps toward commercialization as we introduce Sarkis robotic solutions to potential customers and generate sales momentum.

The excitement that comes from witnessing in person how revolutionary our technologies are can't be duplicated without a sales, with a sales brochure or even a video.

The gardening family of products are bringing advanced technologies such as machine learning, artificial intelligence, thickest physics-based modeling, and simulation to unstructured spaces. This is groundbreaking work and set the Solid Foundation for Circus Delivered RIP as we launch in the industry-specific solutions like the ones we are developing for soil with channel installation and baggage handling.

These foundational technologies are available now and will enable Sarcos to bring new solutions to market with greater speed at a lower development cost.

With this strategy, in the market momentum we created a context, though, the aviation and robotics and the offshore technology conference, we're confident in our ability to achieve our 23 to 25 million revenue target this year as we commercialize our existing lineup.

gain sales momentum and develop new technologies for the future.

Our participation in these events reinforces our commitment to the opportunities we continue to pursue in the aerospace construction and underwater industries, which collectively represent a global-tam opportunity of approximately 185 billion in 2025. After only recently announcing the commercial availability of product.

And now I'll turn it over to Drew to report on the financials.

Thank you, Kiva. To everyone online, it is a pleasure to be here today speaking with you. Please note that our results for last year include the financial performance of Ari Square from the close of the transaction on April 25th, 2022.

Also, please note that as we discussed on the last earnings call, what was formally called research and development services revenue is now called product development contract revenue.

Product development contract revenue comes from the different types of contractual research and development agreements primarily relating to the development and commercialization of our products, including cost type and fixed price agreements.

Now, turning to the financial results. All comparisons I will use are year over year.

For the first quarter of 2023, revenue was $2.3 million compared to $700,000 during the first quarter of 2022.

The increase was due to increased revenue from product development contracts.

Cost of revenue increased by $1.3 million to $1.8 million as compared to $500,000 in 2022 mainly due to the cost associated with the product development contracts I just mentioned.

First quarter, 2023 total operating expenses, including cost of revenues, were $25.5 million, a decrease from the first quarter, 2022 operating expenses, but $26.4 million.

I'll now discuss the operating expenses in more detail.

Research and development expenses increased by $3.5 million to $9.4 million in the first quarter.

This increase was driven primarily by increased head count from the acquisition of RE2.

Part of this increase was also related to increased direct materials charges.

General and administrative expenses were down $8.1 million to $9.7 million in the first quarter, from early due to decreased stock-based compensation expense.

Sales and marketing expenses were $3.7 million, an increase of $1.5 million compared to the first quarter of 2022 due to increased costs from a third-party data management platform and increased costs from our attendance at ConXPOP, the largest construction equipment trade show in North America.

First quarter, 2023 net loss was $21.5 million or loss of $0.14 per share compared to a net loss of $19.2 million or loss of $0.14 per share in the first quarter of the prior year.

First quarter, non-gap net loss was 19.4 million dollars or loss of 13 cents per share compared to a net loss of 13.3 million dollars or loss of 10 cents per share in 2022. We ended the quarter with 94.7 million dollars in unrestricted cash equivalents and marketable securities.

I am now going to turn to our financial guidance.

For the second quarter of 2023, we expect total revenue to be approximately $2.1 million.

Approximately $400,000 of the revenue in the quarter will be revenue from product sales.

Reflecting our work to reduce operating expenses, we estimate cash use in the operating activities will average approximately $5 million per month.

As of March 31st, 2023, we have an unconditional purchase commitment of $4 million, which is related to operational expenses and all of which is expected to be settled during the year ended December 31, 2023.

We expect to pay this amount in two equal installments, one during each of the second and third quarters of 2023. Now for the full year 2023. We are reaffirming a full year 2023 financial guidance. Full year total revenue guidance is expected to range between 23 and 25 million.

Turning to our operating expenses. Research and development expenses are expected to decrease in 2023 as compared to 2022 as we reduce our engagement with third-party service providers as we continue to develop and refine our existing products and further enhance efforts on our future products and software.

With the exception of stock-based compensation expense, we expect our general and administrative expenses in 2023 to increase slightly as the company works on its commercialization pathway and maintains public company compliance requirements.

Sales and marketing will increase slightly in 2023 in line with the expected revenue growth in the future.

We'll get our balance sheet.

We are satisfied with our liquidity and currently have no plans to do an equity finance in 2023. Furthermore, we have taken numerous steps to manage our use of cash and believe we are sufficient capital to fund our business for at least the next 12 months without seeking additional capital. Thank you.

As Keeva previously mentioned, we are proactively increasing sales while working to reduce operating expenses, all with a goal to be on a pace to be cash flow positive in 2025 when we exit 2024. Operator, that is the end of my prepared remarks. I'd like to turn the call over to you now. Would you kindly repeat the instructions to ask a question?

Thank you. At this time we will conduct the question and answer session. As a reminder to ask a question, you will need to press the Star 1-1 on your telephone and wait for your name to be announced.

To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Stephen Volkman with Jeffries. Stephen, your line is open.

Our first question comes from the line of Steven Volkman with Jeffrey. Steven, your line is open. Steven, you there?

Hi, Stephen. Yep, can you hear me now? Yes sir. All right. It's only been what, four years of COVID, and we still can't, I still can't figure out how to unmute myself.

Yes, join the club. Slow learner. Sorry about that. So Drew, can I just start with you with a quick one? You talked about the cash use rate that you expected in the second quarter. Is that a reasonable rate as the year sort of for the rest of the year as well? Or is there any sort of inflection?

very remarks. So we honestly think that if you're looking at it in two layers, there's this kind of exceptional charge, $2 million, it has to be paid out this quarter in two, three, four. But if you take that out, that is probably an acceptable run report for the rest of the year.

So it ends up going around. Please. Good. Can you just say that again because I stepped on your thing? You take that, you know, 2 million is up being about 666,000 a month. So you take that out to bring the run rate down to about 4.3.

Super, that's what I thought. Cool. And then maybe a key question, but obviously you have customers sort of funding the development here. Is there anything more you can tell us about what it is you're spending your time developing, which types of applications we should expect to be kind of first out of the gate here?

Yeah, great question. I think, you know, for us, this course has been super exciting in part because getting our products in the field and getting customers utilizing this is the first time we can say it's available to sell and here you go. So the fact that we've been able to really hit the segments that were super focused on, if you remember this last year, it's been all about really...

That's an area, again, doubling down on aviation, underwater. So we were just at the OTC events, which is the Ocean Technology event in Texas. And again, those are all use cases where currently you have a dive team that goes down and performs a task. Now you don't have to put a diver in dangerous spaces and places. Our product can perform that task now. So you can use the lab data to test.

I'd say those are the areas where aviation, underwater, and then on the construction side, it's work at high. So we're definitely focused there. And then on construction, solar construction, we executed the demos. So those were taking that foundational technology. And then we're really creating these solutions to solve these very critical pain points in each of those segments.

And should we expect those applications to be sort of remotely operated at first, or are you working on sort of slowly automated solutions already?

We call it semi-acombin. So again, you've got a human in the loop, the first go around, it can train the robot, and then it can perform, in some cases, it can perform that in a semi-acombin this way. So you say, hey, I need you to clean this side of an airplane. It says from point A to the human says, from point A to point B.

but then they could be managing a fleet of robots based off of the labor shortage set. Almost every industry we're talking to has seen.

Super. Okay. Appreciate it. I'll pass it on. Thank you. Thanks for joining.

Thank you very much. Our next please wait for our next call. Our next question comes from the line of Guy Hardwick at Credit Suisse Security's research. Guy your line is open. Hi, good afternoon.

Thanks for joining us. Thank you. Thank you. Thank you. So it looks like your Q2Gynes includes 400,000 of product sales. I guess that's anywhere between one and three robotic systems. So, Kito, is that the case which products and who's the customer?

Yeah, so we can't go into the details of the customer. The use case, so you know, now that we're producing units that are available for sale or factories, there are people who are kind of anxiously waiting in line to get them so that they can start evaluating these units and, excuse me.

and providing them with the potential customers getting initially in a cell. Some cases, they're evaluating the robot's traditional point.

where they'd like to use robot to support existing employees or fill void Created by worker shortages for in other instances. You know, there's an area where we talk about and they're really just testing it

you know, for a very strange to make sure it's meeting the requirements.

So the bind needs to just kind of bind that initial unit. And as we go out here in the second half of the year, we're looking for robust cells to expand.

In this particular instance,

You know, it's it's it's just one unit. So it's full system. So it's not just a you know, again, we should remind you we're saying

kind of the arms and the old software and everything related to it and it's an initial standalone to a team that's testing out the unit.

I believe they're playing Sam. So, I'll make Sam a XT. I have to give you one of the close-out of all the details. You're coming.

Yeah, no, we're not disclosing the level of detail at this point. Our focus now is as we transition from really R&D to having product sales, the revenue number, to your point, I know you have to update your modeling, is really going to speak to where we're getting traction. So in this specific area, it's likely to be in one of the use cases that I just outlined and highlighted. So,ONS—I'll call it a loyal

Yeah, no, we're not disclosing the level of detail at this point. What our focus now is as we've transitioned from really R&D to having product sales, the revenue number, to your point, I know you have to update your modeling, is really gonna speak to where we're getting traction. So in this specific area, it's likely to be in one of the use cases that I just outlined and highlighted. Okay, and do you have...

Do you have an order book which is going to be materialized over the second half or not yet? We have seen an order book that's been materializing as a result of the OTC conferences as well as the CON-XPO. In addition to the orders that we've already been in discussions with customers previously. So there is an order book for me.

So, very exciting for us right now. And these are contracted orders with a perch.

So what are you talking about? It's more pipeline right now that they should convert as we get human development. As you go from this transition where you've never manufactured anything before, it's manufacturing them. People want to buy those first units and just test them out and make sure that the durability and everything else is there. And the software works and it meets the specific needs. And then they'll move to that larger order. So that you know, really getting these first orders and places.

for a step and then as we get bigger deals, that will be excited to announce them for sure. It's just the final one for me on the imagery step top by two and a half three million sequentially. Is that finished product or is it components mainly?

It's a combination of raw materials and finished products, so we do have both in place now. I think you said in previous quarter you had 10 exams in inventory.

It's a combination of raw materials and finished products, so we do have both in place now. I think you said in the previous quarter you had 10 XM's in inventory. Have you built any additional inventory of units?

So in Q2, sorry, Q1 here we were focused on, just, there's a completion. So the arms were the first base step for us in XMs and then also building these first pre-production units for XTs. We're also being produced in Q1.

And then so the full systems for XMs are kind of done, the XTs are moving to a stage where they're in evaluation. And as it is, I think we also talked previously the C-Class units have also started into a pre-production phase where we're building them out and testing them, making sure that we have all the steps in place so that we can move to more of a post-production stage as we get further out in the year.

Okay. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1 1 on your phone to get into the queue. Please stand by for our next question.

Our next question comes from the line of Rob Mason at Baird. Rob, your line is open.

Yes, good afternoon. Maybe just to follow up on the last topic there around your inventory. Do you have the raw material? I'm just curious how your supply chain has been trending for you around components. Do you have the raw material components in inventory today to be a...

Lisa Johnson, who's a BPS supply chain for Sarcos, has done a tremendous job securing and making sure that we've got the components to be able to meet the build schedule. So yeah, as you know, we had communicated around a $3 million pre-purchase throughout the last year to ensure that we had the key components in place.

Ray. My impression was there might you know there's been some work there in the past maybe with RE squared so to the extent you know you're starting off starting to sell those units yeah how readily can they be integrated into Video Ray's product and there was also reference to a Navy contract of Video Ray.

I guess, had one been awarded. What's the relationship with that Navy contract in Sarko's current status or potential there? Yeah, great, great question. So you are 100% correct. Our Yorkin and Team has been working with Video Array on the minutrileization work.

for many, many years, really tight relationship. I had the pleasure actually to see it in action here in San Diego about a month, a month and a half ago and talk firsthand with the folks leveraging the defenders. So, we're excited about the Video-Ride Partnership in part because they are the best of the best. That's the best vehicle out there.

They have a very strong relationship and contract with the Navy and we're basically, you know, in a very short period of time, you can retrofit the current install base and all new units with the Sarcos technology. And that also includes the ability to do things in a semi-autonomous way.

So, you know, grabbing a piece of equipment off the ROV so that you can cut something. All of those things now, you know, because it's hard to navigation underwater, we've really been partnering with them to make those semi-atonomous as well to make that an easier task for the people that are above water.

And we strongly believe in the undersea space. It's a large target market. We've also seen good momentum on the commercial side, outside of the Navy. Again, this is where you currently today, there's a lot of tasks, whether that's inspection, whether that's line maintenance for people.

are getting in the water and now they don't have to. But the partnership, we're just building on that and we're excited. O2C went really well for us last week. And it was nice to see the first splash of the product as well. And it working the team, it's a really tight team too. So it's fun to celebrate with them.

to that and add on, the nature of the relationship is such that they can be selling our system, so that the arms can be added to existing systems that are in the field, and they could take it on them if they have a customer that comes to them and wants to do that, they could do that sell. Or alternatively we can also be reaching out to their existing customers.

selling to them to sell our arms so they can be attached to existing systems or if we individually identify somebody who wants a whole system both the ROV and our arms we're trying to structure it so that it's kind of a one-stop shop for the customers so on either side we could sell the whole solution.

Even though our real focus is just selling the technology we've developed and have been making available to. So it's a really nicely structured relationship, a good relationship there, and it looks like we can be selling both sides.

Understood. Thank you, Drew. Thank you very much. At this time, I would like to turn the call back to Kiva. All good for closing remarks.

Well, thank you. Great questions. Really appreciate you guys joining us today. We're super excited and optimistic about where the company is headed, especially as we gain market momentum and customer feedback. We're on track to achieve our targets for the year as we push onward towards commercialization.

Thank you for joining us. Keep the questions coming and have a great evening. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.