Embark Technology, Inc.

Good afternoon, and welcome to the Embark Technology second 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 Investment Relations. Please go ahead.

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. Embark issued its second quarter 2022 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 this call will include full-looking statements based on current expectations and assumptions, which are subject to risk and uncertainties. These statements reflect our 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 full-looking statements in light of new information of future events. These statements are subject to a variety of risks and uncertainties that can cause actual results that 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, Form S-1 filed on June 1, 2022, and other documents filed with the SEC from time to time. We will discuss non-GAAP financial measures which we believe are useful as supplemental measures of the box 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 file links 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 on our website. I would now like to turn the call over to Alex. Thank you, Bill.

Good afternoon, everyone. I'm going to begin on slide three, where I'll provide some key business updates since our last call. First, with respect to commercial and operations, the operational and technological milestones for our truck transfer program continue to remain on track. and we're on schedule to deliver the first truck to Knight Swift by the end of the year. I will share some more detail later in the call, but we are excited about the continued collaborative work with our carrier partners in developing an operating framework and key procedures that cover all facets of running embark-equipped trucks within the carrier fleet. Our Partner Development Program, or PDP, continues to expand, both in breadth of partners and depth of engagement. Most recently, we added a top 10 less-than-truckload, otherwise known as LTL, carrier, with a nationwide footprint of terminals as our newest PDP partner. We're excited to onboard this leading LTL player as we see the defined terminal network of LTL providers to be especially well-suited to rapidly adopt autonomous trucks. We continue to emphasize quality over quantity when selecting PDP partners, with a focus on organizations equipped to implement autonomous technology at scale. Also on the PDP front, we will be speaking with our existing partner, DHL, at the FreightWaves Future of Freight Festival in early November in Tennessee. Please come check it out. We continue to methodically expand the Embark coverage map. In the second quarter, we worked with Altera to add four new strategic sites across the Sunbelt. The Embark and Altera teams have worked collaboratively to help secure optimal sites for Embark in a variety of ways. Two sites were sourced and acquired by Altera. One site was secured through an Altera intro to an existing owner, and one site was an already owned Altera site, which was well-suited for autonomous operations. We have been impressed with the resources and flexibility that Altera has brought to the table, and we look forward to continuing the strategic partnerships. Embark also continues to make meaningful progress on the development of our Embark Universal Interface, a standard set of sensors and compute that have been designed to integrate with all four of the major OEM platforms by way of a set of flexible digital and physical interfaces. We believe this approach of cross-OEM compatibility, which has had us planning for early production through Upfitters, now positions Embark well to navigate the ecosystem complexities as we begin to see delays across the manufacturing landscape. Now Embark is not immune to the delays experienced by OEMs in Tier 1. However, we do expect that the strategic decisions we made with Embark Universal Interface over 18 months ago provide us flexibility in navigating the ecosystem over the coming quarters as we prepare for commercial deployment. As our team looks forward in our commercialization plan, we are taking these new manufacturing conditions into consideration and continuing to adapt our staged rollout plan to fit the realities of available capacity and production efficiency. At the end of today's presentation, we'll share a bit more detail about this outlook. Finally, on the policy side of things, I, along with other leaders in the autonomous industry, collectively co-authored a letter to Governor Gavin Newsom to direct the California DMV to move forward on a rulemaking process to create a pathway for legal testing and deployment of level four autonomous trucks in the state. We believe this unified action will help drive support for AV testing in California and ultimately help improve road safety and the supply chain crisis hampered by truck driver shortages. Next, I want to touch on safety. Prioritizing safety is one of Embark's core company values, which we've highlighted in many of our corporate reports, including our recent ESG report. In June, the National Highway Traffic Safety Administration, or NHTSA, issued its inaugural report on crash data collected from automated driving companies under a standing general order. The report identified Embark's perfect safety record, having never been involved in an NHTSA or FMCSA reportable crash since its founding in 2016. This perfect safety record is made possible by Embark's high operational standards and unique technical capabilities such as vision map fusion. This report highlights the industry's focus on safety and Embark as a leader prioritizing safety within the industry. Now, turning to our technology roadmap. In 2022, we committed to achieving two of the five remaining technological capabilities we believe are required to commercialize Embark Driver. I'm proud to report that Embark successfully demonstrated autonomous emergency vehicle interaction leaving just evasive maneuvers remaining this year. We'll discuss the emergency vehicle interaction milestone in more detail later in the call. We're excited about both the demonstration of technical capabilities and the government collaboration required to successfully achieve this milestone. And finally, I'm pleased to highlight two engineers from our world-class engineering organization. Taylor England and Raina Liu co-invented a simulation evaluation pipeline and recently filed a patent, which adds to our growing intellectual property portfolio. This cross-functional invention connects Embark's catalog of scenarios, which we capture during years of on-road testing, directly to our simulation environment. By connecting our extensive scenario database seamlessly to Embark's simulator with a robust querying tool, our engineers can quickly find the most valuable and relevant on-road data and pull it directly into a re-simulation environment. There, they can further parameterize the data, allowing for a targeted and rapid feedback loop between development and testing, which results in new features on the road sooner and with even higher confidence. You can read more about the process in a Medium blog they wrote on the topic, which is linked on this page in the earnings presentation and can also be found on our investor relations website. Lastly, I want to address how Embark is adapting to the current market conditions. Embark's asset-light business model focuses on partnering with major constituents within the trucking ecosystem, including carriers, shippers, real estate partners, and Tier 1 manufacturers. This strategy allows Embark to be highly capital efficient by leveraging the resources and know-how of our partners. This is something we've been consistently doing since our founding, and we are especially realizing the benefits of this strategy today, given the current macro environment. I'll speak to this in more detail a bit later. If there's one key takeaway about how we operate in our business and why we believe we are set up for success in a challenging macro environment is because we are focused and we are efficient. And as we have consistently said, this provides flexibility to refine key initiatives, key partners, and the resources required to execute upon them. As the macro environment rapidly changed during Q2, We also adapted to ensure we can continue to be positioned for long-term commercial success. As you know, headcount is the primary driver of our free cash flow spend, and we implemented a more focused hiring effort during the quarter. Richard will speak in more detail on the implications for our free cash flow spend guidance for the remainder of 2022 as a result of this initiative. What focused hiring means is we're continuing to ensure that we manage headcount growth to identify and fill key roles on the team without compromising our ability to commercialize our technology. Fortunately, we feel very good about the current team that is in place today to continue to advance the technology towards commercialization while extending the runway. In that vein, there are three key recent hires that we're excited to welcome to the team that I wanted to highlight today. Head of Manufacturing, Brandon Connors. Brandon has deep experience in the AV sector. Most recently as Head of Manufacturing at Matternet, focusing on autonomous drone delivery. And before that, spent four years at Waymo as Head of Manufacturing and Supplier Quality. And before that, worked in Manufacturing Engineering at Apple and Nest. Head of sensors, Jim O'Keefe. Jim also worked at Waymo, where he spent five years as the camera sensor program manager. He's an electrical engineer who began his career at NASA, developing data acquisition systems for space missions. Finally, head of business development, Josh Raycroft. Josh previously led business strategy and partnerships at Virgin Hyperloop for seven years. Prior to that, Josh spent six years in engineering at GE Aviation. Lastly, in mid-July, we filed a proxy statement announcing a special meeting of shareholders on August 15th. to vote on a proposal to implement a reverse stock split. As disclosed in the proxy statement, the board will approve the exact ratio just after the shareholder vote. The exchange ratio will be set between 15 to 1 to 30 to 1. We expect Embark share price to begin trading with the effect of the reverse stock split as of August 17th. The objective of the reverse stock split is to ensure we meet the listing requirements for NASDAQ, as well as effectuate a share price and float that meets investment criteria for many institutional investors. Now turning to slide four. As we have done throughout the year, I want to reiterate the objectives that we laid out during our Q4 earnings call in March and that we plan to deliver on in 2022. First, to deliver the first truck into the fleets of carrier customers through our truck transfer program. Second, to 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, to launch the backbone of the Embark coverage map across the Sunbelt region. I just touched on the continued expansion of the Embark coverage map and will provide a more in-depth review of our emergency vehicle interaction accomplishment, as well as the progress we've made across our TTP initiatives in the next few slides. Turning to slide five, Embark's partnership with NightSwift and our joint work through the truck transfer program is paving the way for the industry's first deployment of autonomous trucks within a fleet's operations. We're excited to report that the program is currently on track to begin delivering Embark equipped trucks starting in December. We're on pace to have NightSwift drivers, maintenance personnel, and dispatch operators trained and ready to deploy the trucks within their regular operations, supported by the Embark Guardian software and associated support center. To date, we've made significant progress across both technology and operational milestones for TTP. On the technology front, we've refined our Embark Universal Interface, or EUI, to optimize for the uptime requirements of daily in-fleet operations. Specifically, we've hardened our compute stack to ensure sufficient reliability under the range of environmental conditions we expect the trucks to encounter. as well as simplifying our sensor packaging to optimize for serviceability by minimizing mounting points to the trucks. We're currently running these updated trucks through the latest pre-production testing. On the operations front, Embark and Nightswift have completed a detailed 40-page concept of operation, outlining the intricacies of how Embark-equipped autonomous trucks will operate within Nightswift operations. Alongside this detailed plan, we've jointly finalized a set of standard operating procedures for pre-trip inspections, truck dispatching, and remote monitoring through Guardian. These procedures will have Embark and Nightswift staff working together to ensure the consistent and safe dispatch of Embark-equipped trucks. In an effort to prepare Nightswift sites to receive, store, and launch Embark trucks, the two parties have defined requirements for facilities that will house automated trucks overnight. Looking ahead as we progress towards project completion, Embark and Nightswift will focus on finalizing tech integration, executing training for relevant drivers, maintenance, and dispatch personnel, and executing the handover of trucks beginning in late Q4. We believe these key real-world learnings will allow us to support being able to deploy our technology at scale in the near future. Next, we'll move on to slide six. We've successfully demonstrated our emergency vehicle interaction milestone through collaboration efforts with the Texas Department of Public Safety and the Travis County Sheriff's Office. I'm sure many of you have seen the videos of self-driving cars in San Francisco appearing to be pulled over and then unexpectedly started driving again. This sometimes resulted in situations that were surprising and even potentially dangerous for authorities. To commercially deploy self-driving trucks, we need to operate safely, not just in day-to-day driving, but in all these long-tail road situations with other road users. And that's why Embark has been working closely with law enforcement to ensure our trucks react in a safe and predictable way for authorities. I want to highlight two key components of our emergency vehicle work. First, Embark's engineering team built the technical functionality, allowing Embark-powered trucks to identify emergency vehicles via lights and other cues, and then respond accordingly by pulling over safely onto highway shoulders. Second, Embark developed an interaction protocol with input from law enforcement that can enable any law enforcement officer to safely stop, approach, and receive information from an autonomous truck intuitively by utilizing a scalable process, including communication with a remote guardian support technician and a built-in lockbox on the truck. Importantly, this process is safe and allows for seamless interaction with law enforcement without the presence of a driver. This represents the first-ever public demonstration of an autonomous truck participating in a routine traffic stop on a public highway. With this engineering breakthrough, Embark has now achieved 12 technical milestones on our roadmap and is a step closer to commercial deployment. A video of the capability in action and more detail on the accomplishment can be viewed on Embark's investor relations website. And with that, I will turn it over to Richard to discuss the financial details.