Embark Technology, Inc.

Good afternoon and welcome to the Embark Technology First Quarter 2022 Earnings Conference Call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. I will now turn the call over to Bill Ong, Head of Investor Relations.

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 Hawa. Before I discuss our disclosure statements, I want to introduce myself as I just recently joined Embark as head of investor relations. As a quick background, I have more than 35 years of experience in investor relations, corporate finance and engineering at Viari Solutions, Applied Materials, and Intel. I've also worked at a number of major investment banking and brokerage firms as a sell-side and buy-side analyst. I look forward to engaging with all of you in the coming weeks and months. Embark issued its first quarter 2022 press release and presentation, which we refer to today. These can be found on the investor relations section of our website at investors.embarktrucks.com. Please note this call will include forward-looking statements based on current expectations and assumptions, which are subject to risk and uncertainties. These statements reflect views only as of today and should not be relied upon as representative of our views as of any subsequent date. 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 can 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, 2022, particularly risk factors describing those filings that could affect our financial results. We will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of embarks 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 to the SEC are posted on the company's investor website. Finally, we are recording today's call, and we'll make the recording available this evening also on our website. I would now like to turn the call over to Alex.

Thank you very much, Bill, and welcome to Embark. We're excited to have you on the team. Good afternoon, everyone. I'm going to begin on slide three. Last quarter was our first earnings call as a public company, and as such, we provided detailed background on Embark, our differentiated technology, and our asset-light business model. Today, I want to highlight some helpful resources for anyone that is new to the story or that wants to take a deeper dive on Embark. I want to specifically highlight the technology section of our website. There, you can find an interactive graphic for Vision Map Fusion. This allows you to visualize what the truck sees when encountering a situation where lane lines have been paved over and the road no longer reflects what an HD map might otherwise expect. In the investor relations section of our website, you can find all of our filings, presentations, and events, as well as our inaugural ESG report, which we released last month. If you haven't already, I'd encourage you to watch our first earnings call webcast on our site. There I give a primer on Embark's history and differentiation for public investors. Finally, I want to mention our Medium blog, where you can hear directly from Embark's executive leaders with in-depth perspectives on the industry, IP, software development, government relations, and more. If you want to deeply understand all the angles on the self-driving truck industry, this is the best place to go. All of the resources mentioned are hyperlinked in the investor presentation for easy access. Turning to our business update on slide four, I'd like to discuss key business updates since our last call. I'm excited about the progress that we've made in such a short time. We received the first trucks for our truck transfer program. These were purchased by Knight Swift. As you recall, Embark's Truck Transfer Program, or TTP, is an industry-first program that we highlighted in detail during our Q4 earnings. We believe that TTP will unlock the next level of integration and deployment learning ahead of scaled commercialization. And it represents the natural next step by having carriers own, operate, and maintain an Embark equipped autonomous truck. On commercial and operations, we recently commenced 24 hour a day testing on the I-10 in Texas. Not only has this allowed us to more than double the testing capacity of our trucks, but it also allows us to refine our technology for nighttime driving and ultimately prepare for a world where trucks drive around the clock. By increasing the number of miles from each tractor and by maximizing the engineering benefit of each mile under a variety of scenarios, we're able to rapidly advance our technology in a highly capital-efficient manner. As you may have seen last week, we announced that U.S. Express has joined the Embark Partner Development Program. We believe Embark's partnership with U.S. Express is highly differentiated in that it goes beyond typical pilots to focus on preparing U.S. Express's terminals to receive and launch Embark-equipped autonomous trucks. This is a significant milestone and marks the first time a carrier's terminals will be added to the Embark coverage map. This will unlock additional efficiencies for U.S. Express and enable Embark to remain asset-light. Embark has been pioneering work on the TransferPoint model since 2019, setting the groundwork for us to bring this expertise to partners like U.S. Express. Lastly, I want to highlight some recent progress on the Partner Development Program. a critical program that enables Embark and our carrier partners to prepare to scale Embark's technology. As we've shared in the past, we believe the rate of adoption can be positively impacted through deep, early collaboration between Embark and carriers to identify and resolve the friction points that would otherwise hamper deployment and scaling. One example that I want to highlight to this effect is a recent upgrade we made to our customer analytics environment, where we run various strategic and operational analysis on lane-level data sets that are provided by our PDP partners. These recent upgrades have unlocked a few new benefits for Embark and our partners. Most notably, one, increased efficiency. We've automated our analysis and reduced time to run from days to hours, which will enable us to bring on and serve more partners in the future. Number two, dynamic planning. This streamlined interface enables us to run more what-if scenarios in partnership with carrier leadership teams. We can iterate and converge on strategic and operational decisions more quickly by being able to look at alternative views of the data in real time. And number three, we're now able to answer a broader set of questions by bringing together a more cohesive modeling framework and interconnecting more factors, such as lane density, rollout sequence, unit economics, terminal availability, sustainable implications, and delivery time gains. To name just a few, this allows us and our carrier partners to be better informed for key decisions. Now, turning to updates on leadership. We continue to selectively grow our exceptional and highly experienced leadership team and are tracking to the overall headcount targets across the organization. We're proud to have been able to attract experienced, top-caliber candidates in an overall challenging labor market to fill positions that are critical to advancing the technology and operations of our business. We think this really speaks volumes about our culture, our mission, and the belief in what we are doing at Embark. A few key hires that I'd like to highlight today. We recently announced the appointment of Sarah Quick, as our head of operations safety. Sarah will coordinate efforts to identify and mitigate risk in our on-road operations. Most recently, Sarah served in a leadership role at Virgin Hyperloop, and she brings over a decade of experience spanning safety and transportation in rail and on-road operations. Emily Warren recently joined as Embark's head of public policy to continue our collaboration with policymakers in preparation for commercial deployment. Emily brings over a decade of mobility and logistics policy experience to Embark, having previously served in senior policy roles at Lyft, Lime, and Amazon. Finally, as I mentioned at the outset of this call, we're excited to welcome Bill Ong to lead our investor relations efforts. I know I mentioned the addition of JB Passat and Sam Lesh last quarter, but I wanted to highlight them again as they've written some very interesting and in-depth blog posts on their respective functions, and I wanted to encourage you to read them. On the Embark coverage map, we specifically said that in 2022, we would launch the backbone of the Embark coverage map across the Sunbelt. I'm excited to update on the progress we've made on this initiative with Rider and Altera in a couple of slides. On the technology roadmap, we said we would accomplish two of the remaining five capabilities in 2022. Those two capabilities being emergency vehicle interactions in Q2 and evasive maneuvers later this year. These milestones continue to be on track, and we look forward to providing more detailed updates over the course of the year. Also, as promised on our Q4 earnings call, I will be reviewing the results of our snow testings. which we believe are transformational for the AV truck industry as we prepare to operationalize and commercialize our technology, not just in the initial Sunbelt region, but across a broader set of lanes in the years to come. Lastly, turning now to community and our commitment to ESG, I want to provide an update on our Little Robots program. As you know, I promised to donate my entire 2022 salary and bonus to launch a grant program and fund a number of projects in STEM education. While I believe this provides a clear alignment with all Embark shareholders and Living Our Values, I find it personally rewarding as well. I was fortunate enough to go back to the First World Championships in Houston last month, which I had participated in and won way back in 2009. It was very energizing to see the excitement around robotics, and I'm thrilled that Embark can be a part of advancing the next generation of engineers. To date, we've already provided grants of more than $50,000 to three organizations, including the Afghan Girls Robotics Team, First Robotics Canada, and the team I founded way back in the day, Team ATAA. Turning to slide five, As we discussed on our last call, and as I previously mentioned, it is important to us to provide clear milestones so that our progress to commercialization can be measured and tracked. To that end, I want to take a moment to reiterate what we plan to deliver in 2022, consistent with what we outlined in our Q4 earnings. First, to deliver the first trucks into the fleet of carrier customers through our truck transfer program. Second, to accomplish two of the remaining five capabilities in our technology roadmap. bringing the total capabilities accomplished to 13 of 16 by the end of 2022. And third, to launch the backbone of the Embark coverage map across the Sembel region. As I highlighted on the previous slide, we're already making substantive progress on those key milestones, and I look forward to diving in a bit deeper on the coverage map in a few slides. Turning now to slide six, I want to provide an update on our snow testing that we conducted this winter in Montana and where we released the results just yesterday. Results from the testing demonstrated that in roughly 90% of the run through snowy conditions under study, Embark's proprietary, patent-pending Vision Map Fusion technology should be able to operate successfully or pause and resume travel with an acceptable shipper delivery window. Let me go into more detail on the entire process, why we are excited about those results. Beginning in February, we began snow testing in Montana with Embark-powered trucks traveling in a 60-mile round-trip route on public roads between Quinton and Missoula, Montana. in a variety of winter weather conditions. In addition to on-road testing, Embark developed a comprehensive weather model using over 8 billion historical weather data points dating back over 10 years on all major U.S. routes to analyze the impact of snow at a lane level across the U.S. The testing and weather analysis show significant technical and commercial promise. Review of Embark's testing and performance indicated that our vision map fusion technology worked within tolerance thresholds for safe operation in snowfall rates up to one-sixth inch per hour, and with snow accumulation of one inch on the road over three hours, conditions that cover the vast majority of snowy weather based on Embark's analysis. Embark's Vision Map Fusion technology has enabled this progress by moving beyond LiDAR-centric mapping and localization approaches. Instead, by relying heavily on the camera-based sensing modality in snowy conditions, Vision Map Fusion is capable of filling in the gaps and mitigating the uncertainty created by accumulating snow on the roadway, unlocking critical shipping lanes and increasing uptime beyond the Sun Belt, where inclement weather can often hamper operations. Embark's successful snow testing creates a path to unlock northern lanes, on which roughly one of five runs experience some snowy conditions. The inclusion of the snowy northern lanes will more than triple our serviceable market when we expand beyond our Phase 1 coverage map, which is focused on the Sun Belt region. Now to be clear, Snowy conditions are not one of the 16 capabilities on our technology roadmap that we're shooting for to commercialize in 2024. However, there are only so many winters between now and 2026 when we plan to expand to the northern part of the United States, and so it's important for us to make each one count. Turning to slide seven, we just released our inaugural ESG report last month on Earth Day. We view this report as the first step in Embark's ESG efforts as we strive to improve the AV trucking industry for all stakeholders, the community, truck drivers, shippers, carriers, regulators, employees, and investors. You can access the full report on our investor relations site, but I want to summarize a few key highlights. On the environmental front, we're working with fleet partners to help them comply with environmental standards, such as those in the EPA's Clean Truck Plan. One example is the electric vehicle drayage pilot that we completed with HP Inc., aimed at utilizing both autonomous and electric vehicle technology to reduce HP's diesel emissions network-wide and create a more sustainable supply chain from end-to-end for shippers. One of Embark's primary social missions is to help enhance safety on public roads. To date, Embark-powered trucks have driven more than 1 million real-world miles without a Department of Transportation reportable safety incident. Embark's collaboration with the Arizona Department of Transportation to improve highway work zone safety aims to reduce the 102,000 work zone-related crashes, which caused 857 deaths in the U.S. in 2020. Trucks have played a large part, being involved in 26% of those fatal crashes. The company also re-emphasized and prioritized its commitment to diversity and inclusion by establishing a company-wide OKR to measure our progress. I'm proud of our efforts on the ESG front to date, and I'm excited for what is to come as we continue to prioritize ESG initiatives to better serve all of our constituents, from the employees and investors to carriers and truck drivers and the communities they serve. Next, we'll move on to slide 8, where I provide a commercial update regarding our Embark coverage map. As we discussed in our last call, the Embark coverage map is a nationwide network of points between which carriers can dispatch Embark equipped trucks. Launching the backbone of the Embark coverage map in the Sunbelt region is a key focus for 2022, and we're excited about what we have accomplished so far. Over the past few months, Embark has begun to further develop some of the key partnerships necessary to activate a nationwide network of sites between which Embark equipped trucks can operate. As we shared before, we see our network consisting of two distinct site types. First, we're in the process of establishing a network of anchor terminals that are Altera-owned and rider-operated to enable carrier partners to conduct transfers at the edge of major freight markets. Second, in time, we will look to supplement these anchor terminals with existing high-volume carrier and shipper facilities, between which partners will be able to run freight directly, unlocking a new level of efficiency. The Embark Coverage Map is the aggregation of these two facility types into a nationwide network of transfer points between which Embark-equipped trucks can operate. Regarding our anchor terminals, We have some exciting updates to make. Our partnership with Altera has already begun to bear fruit. The Altera team has initiated searches in multiple Sunbelt markets and is leveraging our site assessment rubrics to quickly assess and act on properties. This approach is already yielding results, with Altera initiating its first property acquisition process. Our work with Rider has also led to some meaningful achievements recently. Just this week, we launched our first Rider-operated site in Houston. This is the culmination of months of hard work by both teams to develop a portfolio of standard operating procedures ranging from gate access to pre-inspection to bill of lading handoff. We look forward to gathering learnings from this initial deployment and continue to expand this service to other sites across the Sunbelt. On the carrier and shipper facilities front, we're very excited about what we're working on with our recently announced new PDP partner, U.S. Express. U.S. Express' nationwide terminal network presents an opportunity for a carrier to leverage its existing real estate footprint to support efficient autonomous trucking operations. Through this partnership, Embark and U.S. Express will identify priority terminals based on traffic patterns, customer needs, and technical requirements. The companies will then start by preparing two terminals in the Sunbelt states, creating a clear path to opening a high-volume lane for autonomous hauling. As U.S. Express looks to grow its autonomous program, the ability to run Embark trucks directly from terminal to terminal provides an added level of efficiency for U.S. Express, while having the added benefit of enabling Embark to remain asset-like. And with that, I will turn it over to Richard to discuss the financial details.