Strategy Inc

Good afternoon and thank you for standing by. Welcome to the Sarcos Technology and Robotics Second Quarter 2022 Earnings Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising you that your hand is raised. Please be also advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ben Mimak, Head of Investors Relations. Please go ahead, Ben.

Thanks, Denise. Good afternoon, everyone, and welcome to the South Coast Second Quarter Earnings Call. Joining us on the call this afternoon are Sarko's President and Chief Executive Officer Kiva Allgood and Chief Financial Officer Steve Hansen. Kiva will start the call with an overview of the second 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 Barry Squared 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. We encourage you to review the risks and uncertainties described in this release and in our filings with the SEC for further information regarding potential risks and uncertainties. We also encourage you to review the special note regarding forward-looking statements included in our earnings release and 10Q for the second quarter. 2022, in each case filed with the SEC this afternoon, and which will be posted in the investor section of our website at ClarkeCoach.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 the most directly comparable GAAP measures, as well as the descriptions 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 up to 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.

Thank you, Ben, and welcome, everyone joining the call today. This afternoon, I will give you an update on the second quarter, as well as our expectations for the rest of 2022. After that, I will hand the to Steve Hansen, our CFO, who will give you a financial update on the company, then I'll open it up for questions from our analysts. The second quarter has been extremely productive and one of significant adjustment for everyone at Sarkoz. We started the quarter working to close the acquisition of RE Squared that we announced at the end of the first quarter. Thanks to the hard work of the teams across both companies, we closed the acquisition as scheduled on April 25th. While the closing of the transaction and integration has been a large part of the focus for the quarter, we've had some other notable successes since our last earnings call. I am particularly delighted to be able to host many of you at the Capital Markets Day back in May in Salt Lake City. I've always maintained that the best way to truly understand the potential of Starco's technology is to experience it firsthand. So it was great to be able to demonstrate the latest iteration of our Guardian XT, as well as our Guardian 6M and C-Class to the group of analysts and journalists, as well as showcasing reductions and the Guardian EXO's weight and developments in the station of the Guardian EXO. The demonstrations were very well received and were a great showcase for the development work we have been doing this year. Also in May, we announced the Air Force Research Laboratory has awarded us a new contract for the development of a collaborative sensing platform. We believe this research will benefit our commercial robotics products, including our CITAR AI platform. In June, we announced the Pittsburgh team had achieved a significant technical milestone and a strong tactile maritime hand for feeling, inspecting, sensing, and handling, which you will probably be relieved to hear we usually shorten to starfish. The team successfully assembled and lab tested a complete gripper capable of grasping and holding a variety of different objects, including tweezers. With the milestone achieved, Sarkis has significantly advanced the capabilities of underwater robotics across a variety of military and commercial applications and increase the capabilities of our sapient C-Class underwater arms. The C-Class is an important project for SARCOs, and I'm very proud of the hard work the team has put into getting us this far. Look out for more news on the C-Class products here. Also in June, we were delighted to be added to the Russell 2000 Small Cap Index. This is an important recognition of the progress we have made as a public company and will improve the sustainability of Starcoast as we continue on the path towards the commercialization of our products. With all this positive momentum, it was an honor to stand on stage alongside our founder and chair, Ben Wolf, as he rang the NASDAQ opening bell two weeks ago. Starcoast has come a long way since Ben co-founded the present form of Starcoast, alongside his wife, Julie, Fraser, and Marco. We still have work to do to bring the product to market, but it was a great opportunity for on our significant achievements since then, including the closing of the acquisition of RE Squared and the execution of several integration milestones over the last three months. As part of our initial integration, we have worked aggressively to integrate the team and realize the significant value we believe this transaction will bring. RE Squared's founder and CEO, Jorgen Pedersen, has joined my senior leadership as the chief operating officer of Sarkos. So we will continue to benefit from his expertise relationships as we move into a crucial second half of the year and work toward the commercial release of our products. I think everyone on this call will know that mergers bring unique challenges along with the opportunities they present. But while our integration is still at an early stage, I have been delighted by the way our teams have pulled together and worked to develop a combined vision and culture. Our integration plan is aggressive but focused on our team members. We have already merged the teams under a new leadership structure with critical leadership positions being filled by both locations in Salt Lake and Pittsburgh. Cross-company training and sessions ensure we are performing as one unified team with shared performance metrics and quarterly goals that focus on the initial commercial release of our product portfolio. Our product line, following the acquisition, includes solutions for a broader range of challenges faced by industrial companies as they move into Industrial 4.0, offering products capable of direct control, tele-operated control, and supervised autonomy. Our teleoperative solution in the form of the Guardian XT and the Sapient 6M systems are designed to allow users to carry out dexterous tasks in complex, unstructured environments. Both systems are designed to remove the operator from dangerous situations and keep them out of harm's way. But each system offers different attributes and features. The Guardian XT is designed to have more dexterity and precision in its end effectors. with a higher lift capacity than the Sapient arm. In addition, the XT is being developed with an expectation of offering supervised autonomy in future iterations. The Sapient 6N system is an intelligent robotic arm that can come packaged with intellect and detect features that make it more suitable for supervised autonomy tasks that require less dexterity. As we have assessed our product range today, we have determined that the Guardian XT Sapient 6M system are closest to commercial release, and thus we will be focusing our commercialization efforts on these two products in the near term. I am happy to announce, in line with the timeline we guided to previously, we have started to deploy units with potential customers for field tests in aviation, shipyard, and vegetation management. We believe there are work-at-height use cases in these industries for which we can gain initial production of commercial units by the end of 2022. We are also in the process of developing solar field construction solutions for both the Sapient and the Guardian XT arm, which we anticipate will start testing later this year. Engagements with future customers for these solutions have been very productive. We hope we will be able to share more details with you soon. The Sapient line also includes a variant. The C-Class, which I mentioned earlier, is capable of teleoperation supervised autonomy and can be integrated with existing ROVs to carry out dexterous tasks at depths of up to one kilometer. The C-Class is undergoing trials currently, and in addition to its successful start to start operation, carried out a successful demonstration of its time mine neutralization system, or M2NS, for its project sponsor, the U.S. Navy Office of Naval Research earlier this year. We anticipate that trials and development of the C-Class will continue through this year and into before we start commercial production later in 2023. It's important to note that while the C-Class development is focused on defense capabilities, we will see several commercial use cases for the product, and we'll be marketing it to those commercial users. As a result, focusing our resources, both human and material, on the commercial development at the Guardian XT and the Sapient system, we have made the tough, drastic decision to delay the commercial release of the Guardian-powered exoskeleton. The Guardian XO remains core to our long-term plan. Development will continue, but as we focus the team on commercializing the Guardian XT and 6M, we do not now expect to start initial production of commercial units of the Guardian XO until the second half of 2023. This is disappointing news for us to convey, not only to our investors, but also to our customers to consistently express excitement and enthusiasm for the product. but it is a necessary step given the supply chain constraints that have delayed the shipment of crucial parts and components, increasing lead times in many cases by two, three, or four times, and driving significant price increases for hard to locate items. To give just one example, we recently received a quote for electronic components that quoted a lead time of 150 weeks for a single part. The war in Ukraine has also had an impact by making it extremely difficult to get parts anodized, for example. And it's not just the availability of components. Finding partners with the capacity to help with the development of our products is also a significant challenge. In this consuming environment, difficult decisions had to be made, and the delay of the XO was one that we didn't take lightly. I want to reassure everyone on this call that we continue to make progress on the XO, work to improve the adjustability of the legs, allows the XO to be operated by users 562 to 644, which importantly puts me in the group that's now qualified operators. The XO diet is also continuing as we work to bring the weight of the product down to the level which will be appropriate for commercial release. It's also important to note that due to the commonality between the Guardian XT and the upper body of the Guardian XO, any improvements we make on the Guardian XT as we finalize its commercial rollout would easily be transferable to the Guardian XO. Finally, before I move on from the discussion of our product line, I want to mention our Cytar AI machine learning program, which continues to make great strides in enabling task-autonomous products. I've mentioned on calls before how the Cytar program has enabled self-balancing for the Guardian XO. We have also demonstrated to customers how Cytar can help us to train robots to complete tasks such as cutting, grinding, sanding autonomously. developed a CITART program, we're also incorporating learnings from the intellect and detect systems that can be bundled with the Sapient 6M products and advanced supervised autonomy and the incorporation of machine learning and artificial intelligence into our products. In light of the new go-to-market plan I outlined earlier on the call, I want to give you some high-level projections on our manufacturing capabilities in 2023. At this stage, we believe we will have the initial capability to manufacture a total of between 300 and 500 units of a combination of Guardian P, Guardian XO, and Sapient system and our existing commercial products, depending on the mix. But we do not believe we will use all of the capacity in 2023, especially as we believe we contract manufacturing partner engaged to produce a high percentage of our commercial units. Given their relative commercialization dates, we anticipate that the Guardian XO will be a small minority of our 2023 manufacturing total. We are working to sign an agreement with a contract manufacturer we hope to bring online in 2023. And in the event that we do, we anticipate the majority of these units will be produced under arrangement. I also want to give you an update on the list pricing of each of these units. We have surveyed companies around the willingness to pay for our technology in 2019. And obviously, the world has changed significantly since then. In light of the macroeconomic impact from COVID, the war in Ukraine, inflation, the tightening labor market, and the continuing demographic changes in the developed economies, we now anticipate list prices to start at $15,000 a month for the Guardian XO and $10,000 a month for the Guardian XT on a robot-as-a-service basis. We expect the majority of the safety and robotics systems will be shipped as a direct sales basis at a volumeless price of $185,000. In addition, as part of our repricing analysis, we have updated our estimates of the cost to manufacture our initial commercial units. In his remarks, he will update you on our expectations for the margins we believe we can achieve once we are producing our products at scale. In conclusion, I'd like to pay tribute to the team for the work that they have put in order to align all the projects, products, towards a combined company goal. It has been a huge effort to integrate two teams and a high number of programs, while at the same time aligning resources, capabilities, and expectations to ensure we can continue to meet our goal of commencing the initial production of units of the Guardian XT Sapient 6M by the end of the year and start shipping to customers early in 2023. When the macroeconomic disruption that continues to impact us all, While these issues remain a concern, we will make every effort to meet the deadlines we have guided you today. Finally, a big thank you to the 280 brilliant Star Coast team members. I'm happy to be working with you on our mission to make workplaces safer and more productive. Few people get to work on cutting-edge technology every day, and I'm lucky to be doing it alongside all of you. With that, I'll turn it over to Steve to go through the financials.