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.

Thanks, Alex. Let me turn to slide nine. Let me highlight some of the key financial metrics that support our business progress. Our cash and cash equivalents were approximately $245 million as of March 31st, 2022. Our free cash flow spend for the quarter was $19.9 million. There's a bit of noise when comparing our free cash flow spend to our Q4 2021 free cash flow spend, which I'll talk through on the next slide. is I want to ensure you have a clear quarter-over-quarter comparison of our cash spend. For your benefit, the key takeaway is we feel very good about the disciplined and free cash flow spend while still achieving measured headcount growth, as well as the liquidity to execute on our 2022 plan. And more generally, given all the business initiatives we've delivered on in the quarter, the prospects of what we expect for the remainder of the year, the best way to sum up the quarter is very solid. As such, we have not revised any guidance previously provided related to free cash flow spend, and we are on track for our initial guidance for full-year free cash flow spend of $125 to $140 million. We believe that given the market conditions and the process improvements we've identified in the quarter, we're likely to come in towards the lower end of the range. I also want to reiterate that we believe our ability to develop a leading technology while being extremely capital efficient is a direct result of our focus. which helps ensure we continue to be prudent stewards of capital as we advance towards commercialization. I will also continue to reinforce the differentiation of our business model relative to other mobility businesses, in that as an AV company, we don't need to build a manufacturing facility or hard asset to have one sale. We're able to have the flexibility to define and refine key initiatives, key partners, and the resources required to execute upon them. Given headcount represents a majority of our free cash flow spend, let me spend a minute discussing headcount and hiring. We ended the quarter with 312 employees, up 76 employees from Q4 2021, or 32% quarter-over-quarter growth. Of these employees, 246 were in our R&D organization, representing quarter-over-quarter growth of nearly 43%. To give you a bit more perspective, the relative percentage of R&D employees to total employees at the end of Q4 2021 was 73%. However, at the end of Q1, it grew to 79%. Despite current market conditions, I don't want to downplay the challenging hiring environment, particularly for software engineers. But we are succeeding in attracting not only high-quality executive-level talent, as Alex highlighted earlier, but talent across the organization. We view this to be very disciplined growth by targeting very specific needs within the organization. So what contributed to our success in the quarter? One, while our core hiring market remains the Bay Area, With hybrid work, we've unlocked the rest of the U.S. talent pool, which has allowed us to scale without compromising on quality, as well as save on compensation expense. Two, our conversion rate and hiring presenters have remained near constant throughout our growth, which means we have been highly consistent in our hiring practices. Three, and lastly, it's important to note that we aren't growing simply to meet specific hiring targets. At Embark, we are not willing to lower the bar of candidates, as quality of hire is always edges out quantity. Culture is a critically important part to Embark, and culture is key to continuing to advance our technology in a capital-efficient manner by having the right quality of people within our organization. To summarize, on hiring, ultimately the proof is in the pudding. Look at what we have done with a more focused approach relative to our competitors. This speaks to the quality of people across the organization at Embark, as well as the culture and capital efficiency discipline. We feel we are winning on all these fronts, which continues to give us conviction on achieving the milestones we've asked you to measure our progress on. Let me walk you through some of the results and reconciliations. First quarter net loss was 18.4 million. First quarter adjusted EBITDA loss was 23.1 million compared to adjusted EBITDA loss of 7.7 million in the prior period and 20.3 million for Q4 2021. We've provided non-GAAP reconciliation in the appendix for your reference. You will notice there was a $22 million gain related to the change in the fair market value of our warrants outstanding. This is a non-cash gain, purely related to the way GAAP requires us to account for the warrants on our balance sheet. And it's also directly related to the change in share price at March 31, 2022, relative to December 31, 2021. Another material non-cash expense is stock-based compensation. Let me provide some additional detail on stock-based compensation, as I know this non-cash expense is an important input to many of your models. For Q1 2022, We recognize stock-based compensation expense of $16.6 million. When removing the impact of Section 16 officers, approximately 60% of this expense is attributable to our R&D organization. As I mentioned on our last call, given the closing of the business combination in November last year, as well as the implementation of new compensation policies, now as a public company, there's a bit of noise in the stock-based compensation figures. I provided a reconciliation in the appendix for reference, so you have a good apples-to-apples comparison on the quarter-over-quarter change. What you'll see is on an adjusted basis, Q1 2022 stock-based compensation was $17.8 million, and for Q4 2021, adjusted stock-based compensation was $16.5 million. I would note that in both Q1 and Q4, much of the noise is related to the way GAAP actually allows us to recognize the expenses as well as some one-time items related to the business combination. As a reminder, approximately $2.6 million of the quarterly stock-based compensation expense is related to our founders' PSU grant. That does not begin to vest until our share price is at least $20, aligning our founders' interest with long-term investors. Moreover, we do view stock-based compensation as a core part of our compensation philosophy to not only align our founders, but to align all employees. And as such, we believe stock-based compensation tends to be a larger component of our compensation philosophy relative to other technology companies. Turning to slide 10, let me provide you some key takeaways. First, quarter over quarter, our free cash flow spend went up approximately 14% when you adjust for fluctuations in networking capital, primarily related to prepaids, as I mentioned on our Q4 call. There are also some additional considerations around some one-time adjustments related to the closing of the business combination in Q4. including one-time cash bonus payments. Second, we believe this growth in free cash flow spend was highly efficient given the growth in headcount, growing 32% with 45% growth within our R&D organization. Third, while there are some timing considerations to explain the headcount growth relative to spend, we were very efficient in the quarter, which is reflective of our general view of compensation philosophy, which I'll talk through. As I mentioned, a majority of our free cash flow spend is related to headcount, And should we need to flex our plan, we can and we will. We are constantly evaluating the resources required to execute our initiatives. I mentioned earlier the uniqueness of Embark's culture and quality of our hires. This speaks to how we can have a trend like the one you see on this page. Stock-based compensation is a key part of our compensation philosophy, not because it simply results in a more efficient free cash flow spend, but because we believe it speaks to the upside potential new hires see in Embark, as well as their desire to be part of something unique. I also think it's well understood at MBARC that this is not simply an academic project, but this is truly a mission to develop, operationalize, and commercialize our technology, and create a business for the long term. And finally, before I move to the next slide, I want to reiterate one last point I made on our last call. As a pre-revenue company, we are very cognizant that every dollar we spend must have a clear and obvious use of advancing us towards commercialization. At the end of the day, We are a people and engineering organization. I've walked through our accomplishments on hiring and detailed our free cash flow spend and how we view the business model. Our disciplined free cash flow spend is a result of our focus, discipline, culture, and asset life business model approach. Ultimately, when you evaluate our technology and what we've accomplished with our resources to date, it speaks for itself. We feel very well positioned today, and as I mentioned, we will continue to make prudent decisions taking into account business needs, and marketing conditions, as we've always done. Moving to slide 11, please mark your calendars and save the date for the second annual Embark Day to be held on September 21st, 2022, with an event the evening before. We are very excited to host analysts and institutional investors once again in San Francisco. However, this time the event will be at our new 50,000 square foot headquarters, only a few blocks from our current headquarters. I think you will find this space to be very impressive and reflective of Embark's culture, being at the cross-section of leading engineering talent and a highly experienced operational team. I would note that finding tech space while having multiple truck bays in downtown San Francisco can prove to be quite challenging, so we're excited to show it off in September. And more importantly, we're excited to provide you the opportunity to interact with our management team, get updates on the truck transfer program, our partner development program, experience a new truck demo, and much more. We also might have a bit of fun if we can squeeze that in as well. Please reach out to our investor relations team if you're interested in attending. With that, I'll turn it back to Alex for closing remarks. Thank you, Richard.

I'd like to conclude on slide 12 by thanking our partners and customers, our employees for all their hard work, and our investors for their continued long-term support. Here I have the same slide that we showed at the end of the Q4 presentation. I wanted to bring it up again to re-highlight why we believe Embark continues to be a highly attractive investment opportunity with a thesis that continues to strengthen over time. First, the macro environment that we've read about and hear about daily. Driver shortages, inflation, supply chain challenges. Our technology addresses these challenges, and it makes Embark's value proposition clear and present. Second, there are a limited number of players actually focusing on addressing these challenges. AV trucking is a huge market, and we are at the forefront. given our longevity in tackling this problem, not just technically, but also operationally. And I think this is very obvious given some of the updates I just walked through. And lastly, we have an attractive asset light software as a service business model. This allows us to go to market and scale in a highly efficient manner. And we aren't just saying this, we're already proving it in the way that we are partnering on building our coverage map, on the work we're doing through the truck transfer program, and utilizing trucks that are purchased, owned, and operated directly by carriers. The excitement amongst our employees, partners, and investors could not be greater. With that, operator, let's begin the question and answers.

Thank you.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

At this time, we will pause momentarily to assemble a roster. Our first question comes from Chris Weatherby with Citigroup. Please go ahead.

Hey, great. Thanks, and good afternoon, guys. I wanted to maybe start just in terms of, you know, your thoughts around the timing of lots of your different initiatives, but maybe specifically focusing in on truck transfer with Knight Swift. I just wanted to kind of get a sense, does sort of the end of this year continue to be something that you feel is realistic? And as you're sort of progressing towards that, particularly as we get into the back half of the year, what are the milestones or challenges you think you might be facing around the dynamics of, you you know, sort of supply chain dynamics, OEM parts availability. Just want to get a sense of sort of how available is it, how likely is it that we'll be able to ramp up towards that year-end goal?

Yes.

Thanks, Chris. We feel very good about our ability to hit that timeline. Things are, I mean, we're what, less than eight months away now, so we have a pretty clear line of sight to all the parts that need to arrive and the work that needs to be done. And we continue to feel good about that end of year timeline. I think this actually is something that really reinforces for us the value of Embark Universal Interface, where we're able to have this truck transfer program taking place on a platform selected by Knight Swift. And so instead of relying on our own supply chain, we're able to integrate the system on top of existing orders from some of the top carriers. And I think that's really helped us be able to keep that timeline on track.

Okay, that's helpful. I appreciate that. And then, you know, maybe you wanted to talk a little bit about the winter conditions testing that you guys have done. It's kind of an interesting dynamic to see you sort of pursue down that path. Now, I know, I think the initial focus isn't necessarily going to be in places where there's a significant amount of winter conditions. But as you think about that sort of opportunity, where does that fit in both from a timeline perspective and then sort of an addressable market perspective into the longer-term plan? Yes.

Yeah, so I want to make sure to be clear that the initial target for 2024 is the Sunbelt. And so when we're doing the snow testing, it's really us starting to lay the groundwork to make sure that we're ready to continue to scale beyond that as well. As far as the high level numbers, our goal is to launch the rest of the country in 2026. We expect that to more than triple the total serviceable market as a result. So pretty big impact. And I think what we learned from the winter testing that we did this year was it really highlighted again how powerful vision map fusion is. We've talked in the past about how this enables us to have the most robust set of capabilities when it comes to handling construction. And it's the same piece of core tech that has allowed us to have this really high performance going into snow. And so I think one of the things I wanted to highlight was just that these aren't actually discrete accomplishments in some sense. These are things that all come out of having a unique architecture that doesn't rely on pre-built maps and instead understands the road in real time. And that's powerful across a variety of different fundamental situations.

Okay, that's helpful. And one last real quick one for Richard, just on the free cash flow spend, the range 125 to 140 this year. How do we think that sort of plays out over the course of the next three quarters? I think you're on a little bit of a lower run rate, but I'm guessing it's going to ramp up. Is it linear throughout the rest of the year? How do we think about that?

Yeah, good question, Chris. So we obviously expect that to increase over the course of the year. You can kind of just do the math and see if you're going to annualize the quarter. I think a couple things that you'll notice is, one, obviously as employees start over the course of the quarter in Q1, You know, I gave you the sort of head count at the end of the quarter, but that will obviously increase expense. And then we continue to expect to have, you know, a measured pace of growth relative to the initiatives that we have. So you'll see that grow over the course of the year.

Okay. All right. Thanks very much for the time. I appreciate it.

Our next question comes from George DeAnaricas with Baird.

Please go ahead.

Hey, guys. Good afternoon. Thanks for taking my questions. First, if it's okay, I'd like to ask about what one of your competitors talked about on their recent conference call and pointing to a delay in their rollout to 2025, and they talked about a variety of factors which you're likely aware of. Can you address those and how you feel relative to their rollout and about the technology issues that they discussed in their call? Thank you.

Yes.

Good idea from you, George.

I think the, I guess the headline here is we still feel good about the 2024 timeline. So we're not changing anything on that front. The reason that we're able to do that is because we've been able to diversify some of the risks using our Embark Universal Interface strategy. And so what I would say is that a single OEM platform having some kind of supply chain related delay is not that surprising from our perspective. Something that we intentionally designed our architecture and our system to be able to be resilient to. And we did that by having Embark Universal Interface be a multi-platform approach, which allows us to diversify our risk across the different platforms as they come to market. And I think this is exactly the sort of development that showcases the value and benefit of that multi-platform approach.

Thank you. So when you think about the risks to roll out to 2024 between now and then, where would you rank technology risks versus supplier risks, maybe they're the same thing, versus regulatory risk versus just hiring risk? What do you think is the highest risk to your deployment in 2024? Yeah, I think

The focus for us is really on making sure that we're able to deliver the scale up in 2024. So when I look at sort of the milestones we've laid out, we feel very good about our ability to deliver against those. And I think the focus today, which you can see with the work we're doing in PDP, the work we're doing with the coverage map, the work that we're doing with snow is really making sure that it's not just that first initial deployment, but we're able to rapidly grow into our customers to meet the needs that they've laid out for us.

Thank you.

Thanks, guys, for your questions, for your answers, and good job managing the cash. Appreciate it.

Our next question comes from Jeff Kaufman with Vertical Research Partners.

Please go ahead.

Thank you very much. Hi, Alex. Hi, Rich. I just want to thank you guys for all the detail. that you put into the prepared remarks. I think very, very helpful. One of the questions I have, and I just want to maybe take this as an opportunity, Rich, to lay out the flexibility you have in case, let's say, the world goes away that it's not supposed to. And I think the reason people are out selling stocks right now is they say, okay, well, if these companies don't generate revenue and they need to raise capital, At some point down the road and the market should close, they can go to zero. So therefore, let's just sell. Obviously, I think we feel it's not appropriate for a bark. But did you talk about you have 240 million of cash? You're going to burn between 125 and 140 million of it this year. Is that enough to get you the commercial deployment? If for some reason it gets pushed back a quarter or two, what kind of levers are out there that don't involve going to the market to raise money to get you to where you need to be? And I think part of the reason for the share reaction today, which we could say is a bit of a knee-jerk, is to the question that was just raised, somebody else pushed back their date by a year. And what would happen if Embark were forced to do that? And I think this market kind of shoots first and asks questions later. But, Rich, could you – kind of lay out the cash burn as we get to commercialization in 23? Does it go up? Does it go down? What levers are there to be pulled so that we can reassure investors that, by and large, you should have enough capital to make it to where you need to without having to go to market?

Richard, you might be on mute. Yeah, I can start.

Thanks, Jeff and Alex. Feel free to jump in. I think we put together a very specific business plan for 2022. And as we mentioned, we've got $245 million of cash at the end of the quarter. And we believe that we've got sufficient ample runway to execute on the milestones we discussed today. And I think one of the areas of focus is, you know, being an AV company with an asset-like business model. We've always had flexibility in our plan to define and refine these initiatives, the partners, the resources required to execute upon them. So we're obviously constantly monitoring the market conditions. We're obviously constantly evaluating the initiatives and the opportunities we have in front of us, and we'll continue to sort of do so. Given that flexibility, we feel very comfortable in being able to flex the plan, you know, up or down, depending on what those initiatives may be on a go-forward basis.

So the point, if investors were to ask me, is the company believes they have the capital necessary to get to commercialization. There's flexibility to scale up and down. I just think right now people are a little nervous in the market, so I think it's shoot for us to ask questions later.

Yeah. Go ahead, Alex. If I was going to add anything there, I would say, you know, if you look at a lot of the work that we do today, As we mentioned to one of the previous questions, there's really a focus on making sure we're able to scale rapidly. Something like snow, which is really focused on the 2026 timeline, efforts like the truck transfer program, which are focused on preparing the largest fleet in the country to be able to run these at scale very quickly. And so you can see that as being an area where we sort of choose where to invest, how many partners we want to bring in, what sort of initiatives we want to be using to pull forward scale. and give us that flexibility to be able to run the business as needed.

And one good example, Jeff.

Jeff, just one good example I'd highlight is, as we mentioned during the prepared remarks, we've always been focused on quality versus quantity as we think about headcount growth, which is where a majority of our pre-cash flow spend goes. And one sort of anecdote is we already have all the people we need today to deliver on TTPs. These individuals are at Embark today. And as we think about expanding and with the choice of people to drive growth in the coming years, those are the trade-offs that will continue to value, as Alex highlighted.

All right. Well, congratulations on the milestones this quarter, and thank you.

Thanks, Jeff.

Our next question comes from Todd Fowler with KeyBank Capital Markets.

Please go ahead.

Hey, guys. This is Dakon for Todd. Thanks for taking my question. Just with the US Express partnership, I guess, what does the RAMP timeline look like for building that operational playbook? And are there any, you know, upfit costs or changes that need to be made to those existing terminals? Or is it just more about, you know, implementing the processes in general? Thanks.

Yeah. So, this is going to be a fairly significant initiative from both sides. Really starting with understanding the entirety of the U.S. Express network and then determining the initial sites and the longer-term rollout plan. So I think it's something that we're pretty excited about. And while it's certainly going to be a significant lift, I think it's definitely going to be worth it from both sides.

Okay, got it. And then on the winter test, are there any sort of key takeaways that you guys experienced on that? And so is there anything you're hoping to achieve over the summer that could provide additional performance improvement as you guys probably test next winter?

Yeah, I think the big learnings for us there, you know, I think I gave you the top level number there, right? You got sort of one in five of those runs ends up being snowy and Vision Map Fusion is going to be able to make that delivery in a timely fashion, 90% of the time. So we're pretty excited about that. The focus for us over the summer is going to be continuing to expand the capability set of Vision Map Fusion, especially to be able to handle situations where you might have more occlusion of the road. And so that would be able to then continue to expand what we're able to do into some of the even more challenging winter conditions that represent sort of that 10%.

Got it. Thank you.

Our next question comes from David Vernon with Bernstein.

Please go ahead. Hey, good afternoon, guys.

A couple questions for you. First, if we can kind of tell us what's embedded in the plan for kind of where we are today in terms of the number of trucks running the technology, where we end up 2022, where we end up 2023. I'm just trying to get a sense for, you know, how many trucks are being operated with a driver still behind the wheel, but actually running the Embark software right now and how that grows over the next two years.

Yeah, hey, Dave.

So we haven't provided guidance on what our truck growth is going to be. I'd make two points. One, we feel as if trucks and the way that we operate them, particularly having 24-hour testing in Houston, is a big part of efficiency. And then I would say the second point is we are actually running trucks, as you know, through the truck transfer program that are not embark-equipped trucks, which is obviously unique relative to the AV industry, which allows us to expand the ability to test. and get learnings without actually having to buy, own, and operate and maintain our own fleet. That said, we do expect, I would say, measured growth in our truck fleet as we continue to evaluate and go through the engineering and testing process.

Well, I guess I was trying to get a sense for, regardless of the ownership of the truck, like how many instances of the technology are rolling around on the highways. That's not something you guys are wanting to share?

We have 18 trucks in our fleet today. And the partner trucks that are running?

We haven't disclosed that number.

Okay. And then kind of coming back to this idea of cash flow, if you look at the guidance you have right now, you will be down to call it three quarters, four quarters of cash by the end of the year. Why isn't the right answer to this question about capital to be out thinking about a capital raise at some point? Because it does seem like you're going to be in the if you're not in the red zone now, next year, if revenue is going to be in 2024, you could get there. So why isn't the right answer to be looking at opportunistically trying to do a capital raise at some point in the next 18 months?

Yes.

So we've obviously been highly capital efficient to date, so we feel pretty good about our ability to continue to maintain such efficiency. And as you know, I mean, you've been doing this for a long time, but to maybe reframe it a bit, There are a lot of considerations or regulatory market conditions and other factors that can affect specific timing. And so while we appreciate the question and understand the basis for it, we're obviously focused on executing in more of a capital efficient manner. And maybe just the last point I'd make is my background is in the capital markets. And so just generally, we know what the tools are in our toolkit and when to think about them and how to think about them. And we're always evaluating what those alternatives may be. but right now we're focused on execution, and we're focused on being prudent stewards of capital.

Okay. And then just the last question for me in terms of the guidance, you know, right now I think Q1, and I can't tell the split on the stock-based comp, but G&A is actually a little bit ahead of R&D expense in the quarter. Is that ratio going to stay the same, or should we be expecting the G&A number to kind of stay flat from here and the growth to be coming on the R&D side?

Yeah, and I think it's probably more representative in the headcount growth, but you should expect that to be more R&D weighted. And as I mentioned, about 60% when you exclude Section 16 officers, given the timing of hiring, was related to R&D.

Okay, so the G&A number is roughly going to be what it is in one queue for the rest of the year?

You should expect R&D to be a predominantly more of the stock-based compensation on a go-forward basis.

Okay, I can follow up to you on that later tonight.

Thanks, Dave. Okay, thanks, Dave.

Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to management for any closing remarks.

Thank you, everyone, for joining us today, and we look forward to continuing to update you on our progress. Have a good evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.