Palladyne AI Corp.

Good day and thank you for standing by. Welcome to the first quarter 2022 Sarcos Technology and Robotics Corporation earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask the question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require assistance during the conference, please press star zero. I would now like to hand the conference over to your speaker today, Ben Mimack, head of investor relations.

Thanks, Andrea. Good afternoon, everyone, and welcome to the Sarkos first quarter earnings call. Joining us on the call this morning are Sarkos President and Chief Executive Officer Kiva Allgood and Chief Financial Officer Steve Hansen. Kiva will start the call with an overview of the first quarter and recent events, and Steve will then talk in more detail about our financial results before we take questions from analysts. Before we begin, we must state that today's call will contain forward-looking statements, including statements concerning future commercial availability of our products, market trends, revenues, costs, and liquidity. In addition, any statements about future performance related to our acquisition of RE2, including our expectations regarding the benefits to be achieved, the financial performance of the combined company, future market or revenue opportunities, integration plans, and other statements regarding the combination of the two companies, are forward-looking statements. These statements represent management's beliefs and expectations as to future events as of today, but there are many risks and uncertainties that could cause the actual results to differ from what we have projected. Among those risks and uncertainties are those described in our quarterly report on Form 10Q filed today with the SEC and those mentioned in today's earnings press release and our press release announcing the closure of our acquisition of RE2. We encourage you to review the risks and uncertainties described in these press releases and in our filings with the SEC for further information regarding these actual and potential risks and uncertainties. We also encourage you to review the special notes regarding forward-looking statements included in our earnings release and 10Q for the first quarter of 2022 in each case filed with the SEC this afternoon and which will be posted in the investor section of our website at sarcos.com and on the SEC's website. In addition, we will be discussing certain non-GAAP financial measures on our call today. Throughout this call, all financial measures will be GAAP unless otherwise noted. A reconciliation of any non-GAAP measures to their most directly comparable GAAP measures as well as the description, limitations, and rationale for such measures are included in the earnings release filed with the SEC this afternoon, and which is available on our website and on the SEC's website. A recording of this call will also be archived on our website. The information that we're giving you on the call is as of today's date, and we undertake no obligation to update the information subsequently. So, thanks again for joining us. At this point, I'd like to turn the call over to our President and CEO, Kiva Allgood.

Thanks, Ben. We appreciate everyone joining us today. This afternoon, I will update you on the first quarter of the year and our expectations for the rest of 2022. After that, I will hand the call over to Steve Hansen, our CFO, who will give you a financial update on the company, and then we will open it up for calls and questions. Due to the final calendar, this call comes only six weeks after our last earnings call, but despite the brief time between calls, the team has managed to achieve a great deal since our last update. As many of you are aware, we closed the acquisition of RE Squared on April 25th, The RE Squared team is now part of SARCOS. RE Squared's founder and CEO, Jorgen Pedersen, is now the chief operating officer of SARCOS, and we have started the process of integrating two teams into one combined team. We are executing an aggressive but people-first integration plan that started with joint onboarding and training sessions in both locations and the cross-pollinization of teams at both sites. Jorgen and I remain confident that the combined SARCOS team has a strong commercial and cultural fit and I believe the combination will have a positive impact on our employees, stakeholders, and customers. The combination of the product, people, and performance metrics are where I'll focus next. We now have a broader product portfolio. Both Sarkos and RE2 are leaders in the development of teleoperator robotics, and we believe our complementary products will allow us to realize significant value from the acquisition. RE2's sapient product line of robotic arms work in markets that SARQA's products are not currently designed to address, therefore widening the potential TAM of our combined product roadmap and allowing us to offer a broader range of solutions to both commercial and government customers. RE2's Sapient product offered different dexterity, manipulation, lifting capacity, and price points than the Guardian products. All the new capabilities allow us to deliver on our unified mission to increase worker productivity, longevity, and prevent injuries through robots. RE Squared's acquisition enables us to combine two teams of engineers, technicians, and developers, which we believe include some of the world's leading experts in human augmented robotics and supervised autonomy. There is a war for technical talent, especially in specialized skills like robotics, and we are delighted to be able to combine RE Squared's more than 100 team members with the SARCOS 160 team members. These team members collectively have over 50 years of designing, building, and perfecting robotic systems, and I have already witnessed the power of bringing these two teams together with our first technical deep dive. We now have two locations, Pittsburgh and Salt Lake City, which will allow us to offer employees and new hires a choice of locations and capitalize on the robotics ecosystem and the U.S.' 's robotics capital, Pittsburgh. To deliver on our mission, we need to execute to our product deliverables and key performance metrics. And I'll provide an update on our combined roadmap later in the call. But first, I'd like to be helpful to set out our product line stands following the Are We Squared acquisition. I'll start with the Guardian product line. Our Guardian XO industrial exoskeleton is capable of lifting up to 200 pounds with little to no human effort. And depending on the use case, we can improve worker productivity by a multiple of two, three, or even more. while simultaneously making employees safer. The second core product, the tele-operated Guardian XT, a one or two arm upper body robot, which can be mounted on a variety of lift platforms and mobile bases, making it ideal for a wide scope of industrial applications, including at height, overhead, ground level configurations. Like the Sapient robots, the Guardian XT allows operators to perform work in dangerous environments at heights while the operator remains out of harm's way. The Sapient product family of robotic arms developed by RE2 has several models which range from 4 to 7 degrees of freedom of movement and have different weights ranging from under 30 pounds to over 400 pounds, depending on the environment and the application. The Sapient arm can be used in a single or dual mode, combined with the RE2's vision autonomy software is able to undertake work in the medical, construction, aviation, industries, amongst others, keeping workers safe, also keeping workers safe, and improving productivity. In addition, the Sapiens C-class variant can be teleoperated in both shallow and deep water environments to complete a number of inspection and maintenance tasks across multiple industries. SARCO expects to benefit from revenues associated with RE Squared's partnership with the government and commercial customers who are funding the development of a number of RE2's advanced robotic systems. During the first quarter, RE2 announced a development partnership with JLG Industries to focus on integrating its sapient arm technology into JLG access equipment. Also in Q1, the sapient C-class successfully achieved an unprecedented depth milestone of one kilometer during an open-wire demonstration with its maritime mine neutralization system, known as M2NS. for the U.S. Navy's Office of Naval Research, who is sponsoring the project. We look forward to sharing more exciting news about the Sapient portfolio very soon. Finally, the transaction will enable us to combine the potential of SARCO's CITAR machine learning program with RA Squared's Detect Computer Vision and Intellect AI software solutions. These software solutions enable supervised autonomy on the Sapient products today. In February, RA Squared announced a strategic partnership with Picnic to work together on the development of autonomous robotic systems. We believe that bringing autonomy to unstructured environments has significant potential for our combined company, and we look forward to accelerating our software platforms together to lead the industry in bringing artificial intelligence to the edge. Turning to the commercialization efforts of our Guardian and Sapien products, we continue to hear from our partners, current customers, and potential customers that hiring sufficient people to perform physical tasks is a challenge. one that is unlikely to change or go away. I mentioned this stat on our last call, but I think it bears repeating. Recent research suggests almost 55 million job openings are expected this decade in the U.S. alone, most of them related to skilled workers leaving the workforce. Filling these open positions will be a challenge for every industrial company. Therefore, we believe the conversations with our industrial partners support that there is a strong and growing market for technology that can solve the shortage of workers to undertake manual tasks, particularly in those unstructured environments where traditional automation is impractical today and likely to be so for the long term. In addition, companies across the industrial space are in the market for solutions to keep their employees safe, whether by reducing work at height or in dangerous situations or incorporating technology to reduce fatigue or repetitive stress injuries. We believe Sarcos technologies will play a critical role in alleviating these pain points for our customers. Our full range of robots that combine the intelligence and skill of human workers with the strength and endurance of machines has the potential to become the workforce of the future. We intend to keep you updated on our progress toward our primary goal of commencing initial production of our commercial Guardian XO and Guardian XT units and milestones that we need to achieve as we progress towards that goal. as well as the continued production of the Sapient product line. As of today, we continue to expect commercial initial production of commercial units of our Guardian XT and Guardian XO products by the end of 2022 for delivery to customers in early 2023. As I mentioned in our last call, we executed beta testing of our Guardian XT teleoperated robot in the first quarter for both government and commercial clients. To date this year, we have completed several successful well-received demonstrations of the Guardian XD working with off-the-shelf tools, including grinders, buffers, and drills. Partners and potential customers who have witnessed these demonstrations have been impressed by the improved dexterity, range of motion, strength, and ease of use that the beta unit demonstrates over its predecessor. As a result of these successful tests, we have been able to secure expanded engagements with two partners, and we hope to be able to update you all on details of these new contracts very soon. We are also making progress in the development of our Guardian EXO full-body powered exoskeleton. As I mentioned in our last call, we have assembled and are in the process of internally testing key parts of the Guardian EXO beta unit. Our focus for the exoskeleton is weight reduction to ensure the commercial units meet our customer needs. Over the past few weeks, we have achieved a number of positive developments in reducing the weight and complexity of the suit, which will help to minimize the supply chain risk and simplify commercial production. On previous calls, we have talked about challenges with hiring qualified candidates and sourcing required components and materials. The inclusion of new team members from RA Squared has added much needed expertise to the company, but we are still in need of qualified new hires in several technical roles. We have welcomed a number of excellent team members since our last call, but the labor market for companies like Sarcos seeking highly qualified individuals continues to be very, very competitive, and we still have open positions. In addition, constraints on the supply chain have been intensified by the war in Ukraine and continue to cause difficulties. In order to future-proof the manufacture of our commercial units, we have made the decision to pre-purchase components and materials in a number of key areas to ensure we have critical components for manufacturing. These purchases will have a minor impact on our 2022 cash position, and Steve will update you on this in his remarks, but we think it is important action to safeguard our stated timeline. As we finalize our commercial manufacturing plan, I want to outline the current projected capacity through 2023. At this stage, we expect to be able to produce between 300 and 500 units in Salt Lake City, depending upon the mix of Guardian S, Guardian HLS, Guardian XT, and Guardian XO products. We continue to believe SARCO's future success is dependent on three factors. First of these three factors is having sufficient funding to bring our products to market. Even following the acquisition of RE2, Sarkos continues to have a substantial cash position, and we continue to believe we have more than sufficient funding to begin initial production of our commercial units of both our Guardian XO and Guardian XT, as well as accelerate production of the Sapien products. The second factor is whether we can develop the technology to meet customer requirements. As I said earlier in my remarks, customer feedback on the demonstrations of the capabilities and performance of the Guardian XT and the Sapient units has been excellent, and we believe we can achieve the same result with the Guardian XO Beta as ready for customer trials, as we have integrated alpha trial and customer advisory feedback throughout all design phases. We already have Sapient robots with customers for testing, and once we have the Guardian XT and Guardian XO Beta units in field, we are confident that our products will provide positive ROI for our customers, the third critical factor for commercial success. Above all, we are very happy with the progress made in the corner. The acquisition of RE², the successful testing and demonstration of our Cardion XO and XT units, and RE²'s technological achievements and new development partnerships all point to a very bright future for Sarkos. I would like to conclude by thanking all the members of the Sarkos team who have worked hard to close the combination of RE² and develop our technology during the first half of 2022. With that, I'll turn it over to Steve to go through the financials.