Embark Technology, Inc.

Greetings and welcome to Embark Trucks, Inc. Q4 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Adam Fee, Strategic Finance. Thank you, sir. You may begin your presentation.

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call with me are co-founder and CEO Alex Rodriguez and CFO Richard Howa. Ahead of this call, Embark issued its fourth quarter press release and presentation, which we will refer to today. These can be found on the investor relations section of our website at investors.embarktrucks.com. Please note that on this call, we will be making 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, should not be relied upon as representative about views as of any subsequent date, and we undertake no obligation 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. For further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our registration statement on Form S-1, filed on November 24th, 2021, and our annual report on Form 10-K to be filed in the near term. In addition, during today's call, we will discuss non-GAAP financial measures which we believe are useful as supplemental measures of MBARC's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You will find additional disclosures regarding the non-GAAP financial measures discussed on today's call in our press release issued this afternoon and our filings with the SEC, each of which is posted on our website at investors.mbarctrucks.com. The webcast of this call will be available on the investor relations section of our company website. With that, let me turn the call over to Alex.

Thank you very much, Adam, and good afternoon, everyone. Given this is our inaugural earnings call as a public company, I'd like to begin by sharing some background on the business and how we are leading the way within the autonomous trucking industry. I'm going to begin on slide three. Embark is the longest-running self-driving truck program in America. Our company, from its founding six years ago, We've solely focused on the trucking market, and we believe this focus differentiates Embark, both in the way that we've developed our technology stack and in the way that we go to market. We also believe that both aspects are equally important to commercializing at scale. We pride ourselves on developing our innovative, purpose-built self-driving technology in parallel with the operational and commercial side of the business. Our primary offering is the Embark driver, our highly differentiated and advanced software stack. We deliver this software as a subscription service by partnering with leading carriers who will pay a per mile subscription fee for Embark driver software, as well as a suite of supporting services. Most notably, these services include Guardian, Embark's cloud-based dispatch and monitoring solution, which delivers 24-7 monitoring for the truck, along with remote assist capabilities and over-the-air updates. We also provide carriers with access to the Embark coverage map. This is a nationwide network of sites between which carriers can dispatch embark-equipped trucks. Within the embark coverage map, there are sites to support both the transfer point operating model and the direct-to-shipper model. In the transfer point model, carriers utilize existing drivers to handle the first and last mile and pick up and drop off at transfer points near city industrial zones where they can make that handoff. Under the direct-to-shipper model, carriers can move goods directly to and from shipper facilities, which have been mapped into the embark coverage map. I want to highlight three areas of key differentiation that are important to the Embark story and the result of focusing solely on autonomous trucking since our inception. First, Embark has developed a proprietary and patent pending technology called Vision Map Fusion. This technology allows Embark's trucks to update the map in real time, which is critical when encountering situations like construction work zones, particularly when you're on a two lane highway and there are no alternative routes. This is different from other autonomy providers who rely on an alternative technology known as HD mapping, which is brittle and requires constant maintenance to reflect changes in highway conditions. Our technology stack reflects our focus on trucking, and we believe it's much more practical for highway driving relative to urban driving. For example, in an urban setting, a robotaxi can simply take a different route, which is not a viable alternative for the highway and trucking use case. Second, we've developed the Embark Universal Interface. These are custom-designed sensor and compute modules that, through a set of flexible interfaces, are designed to be integrated with any of the major OEM platforms. This modular integration approach is designed to enable our carrier partners to purchase embark-equipped trucks from their preferred OEM. This approach was born out of close collaboration with our carrier partners, who for decades have purchased trucks from multiple OEMs and have been deeply involved in specifying these trucks down to the brakes, steering, and even the type of engine. Our interface is designed to accommodate the multi-platform component level purchasing behavior that already exists in the trucking market and is highly differentiated from the monolithic platform development approach of the robotaxi industry. Thirdly, Embark has an asset life business model where we focus on partnering with the major players in the trucking ecosystem, including carriers, shippers, real estate partners, and tier one manufacturers. Unlike some of our competitors who are focused on owning trucks and developing their own fleet, Embark believes we can be in a position to more rapidly scale by building partnerships where we benefit from the skills, expertise, and purchasing power of our partners, resulting in a much more capital-efficient business. As one example, Embark partners with some of the top carriers in the United States as our customer. And when you look at the top 100 carriers in the country, they spend approximately $15 billion per year on trucks. Critically, this asset-light business model also allows us to remain focused on our core competency. building world-class self-driving software for the trucking market. Moving on to slide four, I'd like to briefly discuss the market opportunity. Embark is focused on the rapidly growing $730 billion U.S. truck freight industry, which is currently experiencing many well-known challenges, specifically driver shortages, diminished carrier margin due to rising labor and fuel costs, safety concerns, and increased pressure to expedite delivery times. We believe Embark's technology will address all of these challenges, and more importantly, will help driver quality of life by allowing drivers to primarily service local routes and then return to their homes each evening. Additionally, Embark's autonomous driving solution provides compelling economics for carrier partners by enabling carriers to operate for longer hours with meaningfully higher estimated annual revenue per truck. Currently, trucks driven by humans are limited by Department of Transportation regulations to 11 hours of operation per day. Embark-powered autonomous trucks have the potential to dramatically increase that daily driving time while improving delivery speed and increasing utilization. Also, it's worth noting that one in five loads requested by a shipper today is rejected due to unavailable carrier capacity. We believe our technology will help unlock these supply chain challenges and provide more speed, certainty, and reliability for shippers in the future. Embark technology will also address critical safety issues, as a majority of all motor vehicle accidents are caused by human error. Embark Trucks has a leading safety record among autonomous software developers, having driven over 1 million real-world miles and done so without a single Department of Transportation reportable safety system. All these factors create a very tangible need for our technology and a compelling business and commercial use case. Turning to our business update on slide five, I'd like to highlight several of our accomplishments since announcing our business combination with Northern Genesis last June. In October, we announced that carriers have placed an industry-leading 14,200 reservations for embark-equipped autonomous trucks, more than twice the nearest public competitor at the time of announcement. What makes the reservation announcement even more exciting is that all the carriers that were allowed to place reservations committed to investing today to prepare their operations for autonomous vehicles as part of our partner development program. These reservations represent a major commitment from fleets that are deeply engaged with us, including many of the largest carriers in the country. This reservation process began with Embark's detailed rollout plan across the Sunbelt and then overlaid granular lane and load level data from our carrier partners to plan for the conversion of lanes to autonomous based on factors such as lane length, frequency, and market volume densities. Combined with insights from how our carrier partners operate trucks today, this allowed us to determine how they would actually deploy and roll out the Embark driver technology within their fleet. And then based on this final output, we were able to identify very specifically the number of embark-equipped trucks a given carrier would deploy over the first five years of commercialization. Only then were carrier partners allowed to place a truck reservation, substantiated by this data-driven analysis. This process requires significant coordination and collaboration with our partners, many hours of work, and billions of miles of analysis. The result is a high conviction number and associated lane-level analysis, which allows us to confidently plan our commercial rollout, beginning in 2024, and to meet the significant scale demanded by our partners. We also continue to bolster our leadership team with industry veteran executives who have deep autonomous vehicle experience. A few key hires and promotions I'd like to highlight today. We recently announced the appointment of Stephen Houghton as Embark's Chief Operating Officer. Stephen brings two decades of leadership experience to the team, including six years of autonomous vehicle experience from Amazon and Cruise. Specifically at Cruise, Stephen was responsible for scaling Cruise's operations to more than 700 people. Jean-Baptiste Passat recently joined to lead our software engineering efforts. Jean-Baptiste joins Embark after a decade at BrainCorp, where he oversaw nearly 100 software engineers that deployed a fleet of tens of thousands of production-grade robots. Jean-Baptiste holds a PhD in computational science and is responsible for more than 30 patents on a variety of robotics applications. The last key hire I'll highlight here is the addition of Sam Hlesch on the policy side. Sam served as a senior government affairs representative for the International Brotherhood of the Teamsters Union for over eight years before joining Embark. and brings over a decade of experience in technology, safety, and labor policy at the federal and state level. SAM will further strengthen Embark's longstanding relationship with interest groups, unions, and federal policymakers to collectively deliver the safety, labor, and environmental benefits of autonomous trucking. We're excited to have SAM on the team. We believe engaging with labor is critical to our goal of improving drivers' lives and helps advance our objective of bringing more and higher quality jobs to the industry. At Embark, we truly value our culture and the people we hire. I'm humbled and excited at the many industry veterans who are wanting to be a part of what we're doing here at Embark. On the coverage map expansion, we're excited to have recently announced a strategic partnership with Altera Property Group. Altera is one of the largest and first real estate investment companies in the U.S. to focus on industrial outdoor storage properties. Altera signs use its national real estate portfolio and private equity fund, together totaling over a billion and a half dollars, to identify sites that Embark can use as transfer points in key freight markets. This partnership further highlights the work we're undertaking today in advance of commercialization in 2024 and validates our asset life strategy and ability to remain focused as a software as a service business. Two other key highlights I'll briefly touch on. First, as we announced earlier this year, we expect to demonstrate and provide key results from our snow testing by the end of this winter. I can say we've successfully completed testing with our truck in Montana, and we look forward to sharing the results and key learning on this in the very near term. Additionally, And this is an important one for me personally. As part of our commitment to ESG, I'm foregoing my salary and bonus for 2022. And these will be used to launch a grant program and fund a number of projects in STEM education, beginning with a grant to the Afghan girls robotics team, which I'm really excited about. Embark and I are focused on the long term. And taking a $0 salary and bonus this year is a clear way of creating alignment with all of Embark's shareholders and living out our values. Turning to slide six. Those of you who followed the Embark story for many years have heard me talk repeatedly about avoiding unrealistic goals. Embark has consistently distinguished ourselves as a company that sets realistic expectations with the objective of exceeding them. We did that for five plus years as a private company. And in 2021, I'm very proud that we've continued to build on that track record as a public company. From a technology perspective, we kept up our engineering velocity target of delivering two or more new capabilities from our capability roadmap in 2021, just as we have every year going back to 2017. On the commercial side, in our very first investor presentation, in our path to going public, we outlined three key objectives that we expected to make major announcements on in the following 12 months. Secure truck reservations under our partner development program, enable Embark Universal Interface as an option through manufacturing partnership, and expanding the Embark coverage map. As we just walked through, in 2021, Embark excelled in delivering these ambitious objectives, including announcing in October that we have received more than double the number of reservations from major national carriers compared to our nearest public competitor. We continue to provide ourselves on the depth of our relationships with our partners across the trucking ecosystem and our ability to deliver industry-leading outcomes in a highly capital-efficient manner. On to slide seven. I want to take a moment to outline what we intend to accomplish in 2022. First, become the first autonomy developer to deliver trucks into the fleets of carrier customers. Second, accomplish two of the remaining five capabilities in our technological roadmap. bringing the total capabilities accomplished to 13 of 16 by the end of 2022. And third, launch the backbone of our Embark coverage map across the Sunbelt region. I want to reiterate again that we aim to provide clear milestones so our progress can be measured and tracked, allowing us to demonstrate the advancement of our technology and to provide tangibility towards commercialization. I also want to ensure that not only can you evaluate our technology progress, but also our commercial and operational progress. which is equally important to ensure the trucking ecosystem is ready to deploy our technology. As I said before, we can't simply ask carriers to download an app and start using trucks in 2024 without proper preparation. Instead, we are actively preparing our partners today, setting up the operational framework to ensure our software is tightly integrated within their fleet. This preparation is critical to our long-term successful commercialization and provides another tangible checkpoint as we work with our partners and prepare to put self-driving trucks into service across the Sunbelt. Looking first at the technology roadmap on slide eight, we're providing even more detail around the five capabilities that remain and the timing of when we intend to achieve them. As you can see, two of these capabilities, emergency vehicle interactions and evasive maneuvers, are scheduled to be accomplished this year. On slide nine, we can dig into more detail on emergency vehicle interactions. Emergency vehicle interactions involve the multi-step process of an embarked driver responding to a traffic stop. This includes sensing an emergency vehicle and knowing it needs to pull over, confirming the traffic stop with Guardian, pulling over to the side of the road, informing the officer to call a guardian, and providing access to key documents via lockbox. We've collaborated closely with the California Highway Patrol to test this capability, and we expect completion in the second quarter of this year. We also intend to work with additional local authorities to refine this capability. Moving on to slide 10, I want to discuss the main areas of commercial focus for Embark in 2022. First, the Truck Transfer Program is an industry-first program and a major step in the evolution of autonomous trucking. that we'll be executing over the course of the year. I will speak to this in more detail on the next slide. Second, as I mentioned, we're going to continue to be focused on expanding the Embark coverage map, continuing to build upon our relationships with Altera and Rider. We're excited to truly operationalize the backbone of our coverage map across the Sunbelt by the end of the year. Third, we remain committed to our manufacturing strategy of developing Embark universal interface to work across multiple OEM platforms. As I will highlight, the truck transfer program will be a great proof point of a carrier being able to use their preferred truck platform simply by selecting it and having the Embark universal interface installed. Lastly, the partner development program will continue to mature, and we expect to execute from a set of 40-plus projects across 15 primary work streams over the course of 2022. This will further inform the roadmap towards commercial deployment with our existing carrier partners, while also adding new partners to the program. We're excited to share more details on our partner development program work over the course of the year as we execute on these initiatives. Moving on to slide 11, I want to talk about the Truck Transfer Program, or as we call it, TTP. This is an exciting next step for the autonomous trucking industry. To date, Embark and other autonomous developers have operating a testing model in which the AV provider owns, maintains, and dispatches autonomous trucks, placing their own driver behind the wheel during hauls for shipper and carrier partners. This existing configuration has generated valuable early insights into real-world technology performance, and how to best integrate Embark with QuickTrucks within the existing supply chain operations. The Truck Transfer Program represents the next logical step towards commercialization, marking the first time that the carrier, NightSwift, will own an autonomous truck, maintain and deploy that truck, and place their own driver behind the wheel. This program will unlock the next level of integration and deployment learning ahead of scaled commercialization. Last month, we announced that by the end of 2022, We intend to equip a set of Nightsworth trucks from the carrier's slated 2022 OEM deliveries with Embark Universal Interface for use in their day-to-day operations. We will work closely to develop workflows and account for truck maintenance, dispatching, and IT integration points, among other things, to ensure seamless integration of Embark technology. This will be yet another tangible proof point of Embark achieving our commercialization target and a great example of how the depth of partner relationships is critical to preparing the ecosystem for autonomous trucks. And with that, I'll turn it over to Richard to discuss the financial details.