Embark Technology, Inc.

Greetings and welcome to Embark Truck's third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Adam Seed. Minister, you may begin.

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 Hollow. MBARC issued its third 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.mbarctrucks.com. Please note, this call will include 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 and should not be relied upon as representative about 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 could 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, our quarterly report on Form 10-Q, filed on August 12, 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 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. These additional disclosures regarding the non-GAAP financial measures in today's press release and our filings with the SEC are posted on our company's investor relations 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, Adam. Good morning, everyone. I'm excited to provide our last quarterly update in 2022 and walk through what we said we would deliver on, how we have delivered on it, and how these milestones set the stage for our progress in 2023. Before I get into those updates, on slide three, I want to take a minute to talk about our truck teams here at Embark. In September, Embark celebrated National Truck Driver Appreciation Week, recognizing the around-the-clock contributions of our safety drivers and AV operators. At Embark, we deeply value safety and our people. Embark safety drivers are some of the most experienced truckers in the industry, with an average of over 20 years of experience and over a million miles per person operating big rigs. Our truck team's knowledge and experience are paramount to embark's perfect safety record, as reported this past June by the National Highway Traffic Safety Administration. For those not familiar, a truck team consists of a safety driver and an AV operator. The safety driver is focused on the truck and on the road, while the AV operator is in the passenger seat, or now, sometimes remote. The role of the operator is to monitor the AV system advise the safety driver on performance, and continuously capture feedback on the system to relay back to engineering. This company-wide collaboration between the truck teams and our world-class engineering team is paramount to building the software required to ultimately deploy commercial autonomous trucks safely. The underlying theme is always safety first. While on the topic of safety, I also want to highlight one other recent development which further underscores our commitment to having a world-class safety organization. Last month, we were very excited to welcome Peter James as our new head of systems engineering and safety. Peter most recently worked for over four years at Outrider, and prior to that spent nearly a decade working on deploying autonomous trucks for the Department of Defense, while working at Lockheed Martin and others. At Embark, Peter will leverage his experience and expertise creating military-grade autonomous trucks to further enhance the reliability manufacturability, and safety of Embark's autonomous systems, readying it for commercialization. Now, turning to slide four, if you recall back in March during our first public earnings call, we laid out three primary milestones for 2022, and we reiterated these milestones on each quarterly earnings call since. With this being our last earnings call in 2022, I want to walk you through how Embark is delivering on what we set out to do this year. I'll go into more detail on each of these throughout the presentation. But a quick reminder of our 2022 milestones. First, to deliver the first truck in the fleet of a carrier customer through our truck transfer program. Second, to demonstrate two of the five remaining 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. As I've said on prior calls, we set our objectives to provide a way for you to measure and track our progress as we continue on our path to commercialization. We measure success by our ability to deliver on our stated objectives. And to that end, I'm thrilled with Embark's achievements so far in 2022 and happy to confirm that all these milestones are on track for completion, which is a testament to our team's focus, determination, and consistency. We look forward to sharing next year's milestones in the coming months, and more importantly, delivering on them in 2023. Moving on to slide five, I will update you on our first 2022 milestone, the Truck Transfer Program, or TTP, with Knight Swift. Let me start by giving a little bit of context. All trucks on the road today operate under what is known as a motor coach or MC number, which designates each truck to the operating authority of a particular fleet. Prior to TTP, we believe all testing miles and pilots in the AV trucking industry operated under the AV provider's MC number, not under the carrier or fleet. This means that the AV provider is legally responsible for the truck's operations, not the fleet or shipper. We believe this configuration for testing and running pilots is driven in part by the fact that these trucks are effectively prototypes that haven't yet achieved the maturity and reliability required for the technology developer to confidently transfer trucks to carrier customers with minimal maintenance and engineering oversight. To take that next step towards commercialization, we must go from prototype to creating a product that can stand on its own within a customer's fleet. This is exactly what TTP is doing. To our knowledge, TTP will be the first time that an AV technology provider has put its technology on a carrier-owned truck under the MC number of the fleet and which will have its day-to-day maintenance and operations performed by the carrier after training with Embark. This transition to installing our AV technology on a carrier's truck is truly unique in the industry. And in order to complete this successfully, we've taken a comprehensive three-pronged approach focused on hardware design, software, and operations. First, on the hardware side, our TTP trucks include an improved AV kit with upgrades to critical hardware components designed to achieve reliability for everyday use and to be easily serviceable by fleet maintenance staff with minimal training. We also believe this is a powerful proof point of the Embark Universal Interface, or EUI, and our OEM-agnostic approach. We've worked with Night Swift to select trucks from their order book which happened to be a new brand for Embark. We then engaged that OEM alongside NightSwift and received the necessary information which we required to ensure EUI could be integrated with that platform. Next, we completed and validated the hardware integration on that new OEM platform on behalf of our carrier partner. I want to highlight this process because it really reinforces the differentiation of Embark Universal Interface for two reasons. First, our experience with TTP demonstrates that carriers do have a strong preference about vehicle platform and will choose AV components to meet the requirements of those platforms. And second, this shows that Embark's platform-agnostic approach is further validated by efficiently being able to integrate our hardware kit on a new truck platform in only a couple of quarters. With the completion of component-level verification and validation, or V&V testing, the next and final key hardware milestone remaining for the TTP program is the conclusion of track and climactic chamber testing at the Proving Ground. Second, software. In order to achieve the seamless integration required for Nightswift to implement our technology in their fleet, we made several key upgrades to the software that allows for a frictionless AV system launch experience handled by a single operator. In many cases, the AV system boot-up process is a multi-step process often requiring incremental staff and time compared to a human driver preparing to depart. Our system startup process has been streamlined now to allow for the AV system to be operable in a comparable time to a human driver preparing for departure. Another software upgrade I want to highlight is our ability to automatically detect trailer presence and weight. It's one thing to test software with a single test weight load, but in a real-world setting, every trailer is a different weight, and our software is now able to adapt to this real-world scenario based on the weight of the load. And finally, we're excited about our over-the-air data strategies. which reduces the data transmission needed to operate our AV trucks by approximately 95%. I want to share a quick anecdote on how our PDP program led to this innovation. About a year ago, during regular discussions with one of our PDP partners, who was also testing technology from another AV player, we heard feedback that the other AV player was asking them to install complex, expensive data transmission infrastructure at each of their existing sites to increase bandwidth and support the hundreds of gigabytes of data they were producing per track per day. It was clear to us that this would be a pain point for our carrier customers, and that asking them to install dedicated bandwidth infrastructure was not a solution. Using that carrier feedback, Embarkus developed an intelligent data prioritization system that reduces our bandwidth needs by 95%. This brings total bandwidth needs to within the bounds of a typical industrial site. Instead of sending every data point all the time, our system now only sends data associated with specific topics or tags that are critical to technology development and safety. This is a step change improvement in data efficiency that allows our carrier customers more flexibility operating AV trucks on their own and at third party sites. Our focused data optimized strategy is another example of how Embark driver software continues to evolve from an R&D system to a commercial product. And that brings me to operations. Embark and NightSwift have been working closely to develop and test the standard operating procedures for dispatching, monitoring, and maintaining a commercial-grade fleet of AV trucks. People often don't appreciate that AV trucking has never been done before, which underscores the importance of developing these standard operating procedures and honing them through real-world operations with leading partners. We're going deep into the nuanced details to work out all the kinks and enable a frictionless customer experience. A few operational achievements I want to highlight are transitioning our driver-only configuration to NightSwift, integrating with NightSwift's dispatch system, in completing the initial maintenance program training. Our driver-only configuration is an AV operating configuration that allows trucks to operate in AV mode without needing a passenger-side AV operator. Today, the industry standard for most AV testing, as I spoke about at the beginning, relies on having a person in both the driver and passenger seat. Using Embark's driver-only configuration, which we were one of the first to explore back in 2020, each TDP truck will be solely operated by a Night Swift driver following an extensive Embark training program. To put this into perspective, this is exactly how we envisioned the AV industry evolving. First, a truck team, as I explained at the beginning. Next, an embarked safety driver. Now, a safety driver that works for the carrier, and then ultimately, no driver. The basic premise of TTP is to validate this hypothesis. And as I mentioned earlier, we have hardened and updated our hardware and software to enable this new configuration, which now enables no embarked staff in the vehicle. We've increased system stability, and the need for monitoring or providing feedback to the driver or to engineering has been greatly reduced. These can now be done with automatic alerts, which we believe is the logical pathway to having a safe and reliable system that can ultimately operate with no driver. To support this configuration, integration with NightSwift's dispatch system allows their dispatchers to share critical load details directly with Embark Guardian operations, which allows for more robust remote support. Finally, as I mentioned, we continue to work closely with NightSwift to create the Maintenance Program Training, which is the first AV truck maintenance education program between a carrier and an AV software provider. While the initial training is complete, we expect this training to be ongoing throughout 2023 as we transition additional maintenance activities to NightSwift and focus on harvesting real-world learning from operating the EmbarkDriver software in NightSwift's commercial fleet. As NightSwift prepares to receive the trucks, we will continue to run pilot tests on the system, as well as take our embarked driver training program to NightSwift drivers. In summary, today our competitors are running under their own operating authority. Handing the trucks over to a carrier to own and operate is a significant milestone, which illustrates our confidence in the product and the maturity of the system. This is not a demo or a collaboration where we have engineers nearby to adjust the system if something goes wrong. It's truly handing over a product to a customer. TTP also further highlights the benefits of our close collaboration with NightSwift, enabling us to be asset light and focus on building world-class software while leveraging the operational expertise of the largest carrier in the United States. On slide six, I'm excited to go under the hood on a few of the key hardware upgrades that we've delivered to enhance the reliability, serviceability, and manufacturability of our AV system for deployment in commercial fleets at scale. Starting with the autonomous domain controller, we have been working with one-stop systems or OSS, who specializes in building military-grade compute and storage solutions focused on reliability and performance. Through our collaboration, OSS has customized the solution for Embark's autonomous trucking application, including attributes such as additional ruggedization, secure system monitoring and control, and dedicated cooling technologies, all elements critical to the durability and reliability required for commercial operation of autonomous trucks. I would also highlight As I mentioned during our last quarterly earnings call, having partners like OSS enables Embark to be asset light, capital efficient, and focus on developing high-value software solutions. Regarding sensor integration, the hardware outfit for TTP features new individual sensor pods designed as independent assemblies and optimized for a commercial duty cycle. Each pod is designed to resist harsh environmental conditions at both the sensor and module level. The side sensor pods include upgraded LiDAR sensors, and utilize the truck's existing mirror mounts, making installation and servicing more efficient. Likewise, the lower front sensors are integrated into a custom bumper element designed to allow easy access to embark sensors while retaining the serviceability of OEM components. This was an important consideration for NiteSwift as part of TTP. The upgraded hardware modules have been put through a significant verification and validation testing campaign to ensure the necessary levels of safety, performance, and reliability are upheld throughout extremes of shock, vibration, temperature, exposure, and more. We're excited to wrap up system-level VMV testing, both at the track and in our internal pilots, before handing over the trucks to Nightswift. Before moving on, I want to give a shout out to the Embark operations team, who's been working around the clock to complete the testing required for TTP. In the last two quarters, we've completed four times the number of weekly AV tests versus 2021. This increase in AV tests conducted is just one example of how our operations team is focused on accelerating the commercial and engineering progress here at Embark. Turning to slide seven, I want to provide an update on our capability roadmap. Again, this is a very consistent slide that you have seen many times. Coming into 2022, we had demonstrated 11 of the 16 capabilities we determined were required to safely commercialize our technology. At the beginning of the year, we laid out our objective to demonstrate emergency vehicle interactions and evasive maneuvers this year. And then back in August, we successfully demonstrated the ability to interact with emergency vehicles on a public highway by completing a routine traffic stop without any driver interaction. Next up for Embark is evasive maneuvers. Enabling evasive maneuvers is an important step for commercialization because unexpected things will happen on the road. And sometimes drastic steering or braking is required in order to avoid dangerous situations that can be caused by unpredictable actions from nearby drivers. I'm happy to announce that we're on track to demonstrate evasive maneuvers by the end of the year, which would accomplish both of the 2022 items on our technology roadmap. In addition, we've also been making significant progress on the remaining capabilities, such as inspections, which I'll now talk about on slide 8. The traditional trucking inspection process has long presented barriers to operation of AV trucks. This is because the traditional commercial enforcement system requires all trucks to be able to stop at weigh stations and engage with law enforcement if not granted a bypass. which poses a couple of challenges for AV trucking. First, each weigh station is a unique, unmapped, and unstructured driving environment, which differs from the on-highway environment. Second, roadside inspections at weigh stations necessitate driver involvement, which an AV truck could not easily execute. The solution was to remove the need for weigh station stops by conducting rigorous AV truck inspections before every trip. We worked closely with Commercial Vehicle Safety Alliance, or CVSA, which represents state law enforcement leaders from across the country, as well as leading national fleets to develop an enhanced commercial vehicle inspection standard for AV trucks. CVSA also developed a training course to qualify carrier technicians to perform autonomous truck inspections at carrier terminals. CVSA officially voted to adopt the new standard in September. The standard will require comprehensive inspection by CVSA-trained technicians before each trip and at least once per 24 hours of truck operations. The inspection results will then be reported digitally to state highway patrols, allowing all pre-inspected trucks to bypass weigh stations, except in cases where there is an imminent hazard detected. This new inspection standard raises the bar for truck safety, as 100% of AV trucks will be inspected by CVSA trained technicians daily to ensure there are no safety defects prior to departure. By comparison, in the existing process for conventional trucks, only a small percentage of trucks receive roadside CVSA inspections. And this happens at the discretion of weigh station personnel. In fact, during an enforcement blitz, when systematically evaluating the full set of trucks on the highway, CVSA recently found that 23.8% of trucks had out-of-service safety violations, according to their 2022 internal road check results analysis. We're looking forward to providing more updates on the progress of this important capability in 2023. Turning to slide 9. Last week, we launched the coast-to-coast backbone of the Embark coverage map. which contains nine transfer point sites near key cities across the Sun Belt, including new locations in Dallas, El Paso, Atlanta, and Jacksonville, to accommodate the freight volume in key markets and provide operational support for carriers and shippers using Embark-powered trucks. We strategically selected these nine transfer point locations to open crucial shipping lanes, which represent 28% of U.S. shipping volume in the Sun Belt, for our carrier partners to begin hauling goods autonomously once Embark's technology is commercialized. The lanes in the expanded network cover 9.5 billion miles of annual freight, including San Antonio to Houston, Dallas to Atlanta, and LA to Phoenix, which are some of the highest volume intercity lanes in the United States. Our partnership with Altera and Rider were critical to achieving this milestone, allowing us to secure optimal real estate sites and support services. We leveraged these partnerships to accelerate our deployment timeline, access superior properties for AVs, and deliver infrastructure for fleet partners, while doing it all in an asset-light manner. Partnering with Altera has allowed us to access deep industry knowledge, a team providing nationwide coverage, a portfolio of over 150 existing properties, and a fully discretionary fund to quickly identify sites and to structure flexible usage agreements that will enable Embark to scale across specific properties in alignment with our network's growing volumes. Upon commercial launch, our carrier partners will be able to operate without the need for driver breaks, which we expect will result in delivery times that are significantly faster than what is currently possible. According to Embark's analysis of government data, 41% of U.S. shipment miles in the coast-to-coast coverage map are on lanes that are longer than drivers can complete in a single shift due to hours of service regulations, and which could be accelerated by an autonomous truck. Our proprietary patent-pending vision map fusion, or VMF technology, is uniquely positioned to allow for utilization of the coast-to-coast transfer point network by our carrier partners. VMF minimizes reliance on cumbersome HD maps. by instead integrating real-time inputs from Embark's suite of sensors, allowing the technology to navigate its environment, utilizing a light and easy-to-create and maintain map. This map-light approach allows Embark to expand to new markets in a way where effort and cost do not scale with mileage. Establishing the coast-to-coast backbone of the Embark coverage map was the third and final 2022 milestone that we laid out at the beginning of the year and is key on our path to commercialization as it provides our carrier partners the visibility they need to plan their deployment of Embark equipped trucks, improving the ecosystem's ability to rapidly scale following commercialization. And with that, I'll turn it over to Richard to discuss the financial details.