Palladyne AI Corp.

Good day and thank you for standing by. Welcome to the Q3 2023 Sarcos Technology and Robotics Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To draw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Julie Kegley with Financial Profiles for Sarcos. Please go ahead. Thank you, Operator.

Good afternoon, everyone, and welcome to the Sarcos Technology and Robotics Corporation third quarter 2023 earnings call. Joining us on the call this afternoon are SARCO's President and Chief Executive Officer Laura Peterson and Chief Financial Officer Drew Hamer. Laura will start the call with a discussion of business highlights from the third quarter and recent events, and Drew will then talk in more detail about the financial results before they take analyst questions. Before we begin, we must state that today's call will contain forward-looking statements, including statements concerning future commercial production, release, and availability of our products, product usage, features, capabilities, and value proposition, target markets and market trends, size, and expectations, strategic direction, company facilities, customer demand, and future financial results, conditions, and cash flows, including future costs and cost trends, cash usage, restructuring charges, and liquidities. These statements represent management's belief and expectations as to future events as of today, but there are many risks and uncertainties that could cause actual results to differ from what we have projected. Among those risks and uncertainties are those described in our report on Form 10-Q filed today with the SEC and those mentioned in today's earnings press release, both of which are available on the SEC's website and in the Investors section of our website at starcoast.com. We encourage you to review the risks and uncertainties described in the press release and 10-Q and in our other filings with the SEC for further information regarding these actual potential risks and uncertainties. We also encourage you to review the special notes regarding forward-looking statements included in the earnings release and 10-Q. 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 the most directly comparable GAAP measures, as well as the descriptions, limitations, and rationale for such measures are included in the ARMS release. A recording of this call will be available on our website until December 14, 2023. The information that we're giving on the call is as of today's date, and we undertake no obligation to update the information subsequently, except as may be required by law. Now, I would like to turn the call over to Laura Peterson, President and CEO of SARCOS. Laura?

Thank you, Julie, and good afternoon to all of you joining us on today's call. I am pleased to be speaking to you as the recently appointed President and CEO of SARCOS, a role for which I am sure many of you remember I said I was not a candidate. However, much has changed in a short time, and I was honored to be asked by the Board to accept the permanent role. As I began leading the company in May, it was apparent that we needed to focus the business on clearly defined end markets. With 18 products and solutions, we did not have the capacity to commercialize each one of those with our available resources. It was important that we rigorously prioritize our products. After significant analysis, we identified subsea, aviation, solar and software, as the four markets with the most potential for near-term revenue growth and acute customer need and the greatest traction in evolving markets. We defined the products and product concepts for those end markets, initially narrowing 18 product areas to four. But our work did not stop there. We continued our rigorous, data-driven review of our products and development programs leading to a deeper understanding of the risks and work necessary to bring all of these products to market. With the consideration of our cash position, as well as third party dependencies, customer decision timing, and the cost and time to achieve a significant and steady revenue stream from our hardware products, it was clear that we should adjust course rapidly to right size the company and get our cash usage down to a level that we believe will provide the best opportunity for success with our available resources. We made the decision to suspend our hardware commercialization efforts, implement a significant reduction in force, and focus our resources on our AI platform. We believe this is the right thing to do. The common key differentiator of our robotic systems has been our advanced software including our performance-enhancing artificial intelligence and machine learning capabilities. We believe that there is a significant near and midterm market need and customer value proposition for the capabilities our software platform will provide. Our AIML software platform is being developed to greatly reduce the time to program and train robotic systems, which we believe will accelerate implementation to a small fraction of the current approach providing customers with significant increased productivity at a lower cost and in a more efficient manner. By design, the success-based learning approach used by our software will enable robotic systems to perceive their environment and quickly adapt to changing circumstances by generalizing from their past experience. This ability to continually learn and apply their learnings to new situations and challenges will enable these robotic systems to quickly adapt and continue to perform the desired task. We believe that our AI software platform, which is applicable to the majority of the industrial robots being sold around the world, will enable a dramatic reduction in robotic training times, while also making industrial robots far more agile, meaning they can perform more tasks with greater variability. similar to how humans can perform a wide variety of tasks. In our lab environment, we have trained robotic arms to do simple tasks in minutes. Our software platform enables the robots to learn how to work around unforeseen changes or obstacles by building on their initial programming. The robots incorporate internal and external environmental inputs that allow them to understand their environment, determine reasonable behavior in unforeseen situations, and quickly apply them to the task at hand. Each newly learned task will then be incorporated and used to perform future tasks. This closed-loop autonomy approach is the key to how our software will help reduce costly workflow stoppages and prevent unnecessary downtime. We expect to bring the product to market in the first half of 2024, with revenue being recognized beginning in the second half of 2024. Our decision to suspend commercialization efforts of our hardware products and focus on our software platform will result in significant cash savings and increased efficiencies throughout the organization, in large part by drastically reducing headcount. We will continue some hardware system R&D efforts on a substantially reduced scale in part to support our software platform development efforts. We will be closing our Pittsburgh facilities as well. We are confident about the future of our advanced software and technology focus and see tremendous potential for a SaaS business. By decoupling our advanced AI ML software from our own robotic systems, we believe we have the opportunity to reach a much broader market more quickly by targeting existing deployed robotic systems and new sales of third-party systems. We can provide customers with the solutions they need through the intellectual capital that Sarkos brings to the table, but without requiring significant investment in hardware development and production. One of the reasons I am confident in taking the path of a SaaS model company is the advanced state of our AI ML program that began in 2017 with a vision to use these technologies to greatly enhance the capabilities of our robotic systems. We progressed to our first SICAR government proposal, which stands for Cybernetic Training for Autonomous Robots, in 2019. We began significant development work in 2020 when we hired Dr. Denis Dorachik, our Chief Technology Officer, who heads our AI ML software development efforts. With more than 25 years of experience in the AI and ML technology space, Dennis is an internationally recognized leader who has written more than 40 academic papers and holds several patents in applied controls for autonomous robotics and machine learning. With years of Department of Defense funded AI software development programs under our belt, as well as ongoing DOD funded contracts, and one of the foremost authorities in the field leading our technology vision, we are well positioned to excel in redefining the use of software in the programming, training, and management of industrial and other advanced robots in complex and dynamic environments. Throughout this time of organizational change, we have continued to build momentum through customer wins. In addition to the expanded AI contract with the Air Force Research Laboratory that I mentioned last quarter, we recently reported an additional important achievement. We received a $13.8 million four-year contract from the US Air Force to advance artificial intelligence and machine learning software. The contract supports the development, integration, and validation of our AI and ML software framework for success-based learning, which will allow robots to perceive their environment, determine reasonable behavior in unforeseen situations, and quickly change their actions. We are striving to teach robots to emulate what humans do to adapt to new situations, leverage existing knowledge, and then generalize for limited data to fill in the gaps. Our goal is to outperform current AI approaches in both effectiveness and efficiency to create greater synergy between human workers and AI technology to enhance productivity and workflow agility. We believe we offer a compelling and differentiated value proposition with our software. It has been and will continue to be tested on both existing third-party robotic platforms, as well as Starclose's own development platforms to mitigate risks associated with deploying our advanced software in a commercial setting. As we move forward, Ben Wolfe, founder, board member, and former CEO of the company, has rejoined the executive team as executive vice chairman. I asked Ben to be a part of my team to leverage his extensive experience with the company, potential customers, and the industries and markets we are targeting. He will support our efforts to bring our AI software platform to market, as well as help evaluate and pursue strategic business opportunities, support our commercialization efforts, improve speed to market, and accelerate revenue. Ben and I, along with the rest of the board, are united in our belief that robotic AI and ML software is the future for Sarkozy. AI and ML aren't shiny new objects or buzzwords for us. They are an integral part of the years of work and millions of dollars we've invested. And we see potential applications in the majority of the robotic arms being sold in the market today. I am pleased with the progress the team has made. And I am optimistic about our future as we move forward to serve customers with our robotics AI ML software platform. I'll now turn the call over to Drew to report on the financials.