11/8/2022

speaker
Amy
Operator

Good day, and thank you for standing by. Welcome to the third quarter 2022 Sarcos Technology and Robotics Corporation earnings 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. Please be 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 Investor Relations. Please go ahead.

speaker
Ben Mimak
Head of Investor Relations

Thanks, Amy. Good afternoon, everyone, and welcome to the Sarkozy Third Quarter Earnings Call. Joining us on the call this afternoon are Sarkozy President and Chief Executive Officer Kiva Allgood and Chief Financial Officer Drew Hamer. Kiva will start the call with an overview of the third quarter and recent events, and Drew will then talk in more detail about our financial results before we take questions from others. 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 cause 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 press release and in our findings with the SEC for further information regarding these actual and 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 third quarter of 2022 In each case filed with the SEC this afternoon and which will be posted in the Investors section of our website at sarkis.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 descriptions, limitations and rationale for such measures, are included in the earnings release file 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, thank you again for joining us. At this point, I'd like to turn the call over to our President and CEO, Kiva Aldridge.

speaker
Kiva Allgood
President and Chief Executive Officer

Thanks, Ben. Good afternoon, and welcome to everyone joining us on the call today. The third quarter has been one of milestone celebrations and significant product and market developments for Sarkos. But before I update you on the third quarter, I wanted to welcome Drew Hamer to his first Sarkos earnings call. I'm delighted to have Drew on board as our new chief financial officer. Drew has over 25 years of financial leadership in the high-growth technology world. He has led teams at companies such as Velodyne Lidar, On24, and Keynote. Drew's experience and skills will be invaluable as we work to bring our product to market. So welcome to the Sarkos family, Drew. Following my remarks on the quarter, Drew will provide the financial update. We will then open up the call to questions from analysts. During the third quarter, Sarkos celebrated the one-year anniversary of our public listing on the NASDAQ global market. To celebrate this milestone, I was honored to stand alongside our co-founder and executive chairman, Ben Wolf, as he rang the NASDAQ opening bell on July 25th. For me, it was a real delight to see our team members, their families, and especially our products on the NASDAQ tower at Times Square. And it reinforced the importance of our mission to improve worker safety productivity through robotics. During the quarter, our engineers and development teams were in the field with partners and customers, demonstrating the capability of our robotics One of the most involved and demanding field tests was our participation in the Navy's Repair Technology Exercise, or RepTex. This took place at Court 1 May, California. Over almost a week, four Sarkos robotic systems were put to work. These included the defense version of our tele-operated Dextrous robot, the Guardian DX, the Sapient 6M, and the Sapient C-Class. We also demonstrated the capabilities of a remote visual inspection robot, the Guardian S. Our robotic systems were required to take on various jobs, both on and off ship, including at dock, on ground, at height, and underwater. A critical part of this exercise is the element of surprise. To demonstrate the field readiness of each robotic system, the team was required to execute previously unknown jobs to validate the agility of our robotic systems. The robots carried out jobs including rust and paint removal at height, off-shelf tools, laser ablation, plasma ablation, and cold spray tools. The Sapient-C class performed tasks underwater, including inspection and object retrieval. Successful execution in the field is vital as StarPost continues to design and develop robotic solutions for unstructured environments. This is especially critical as we integrate field experience back into the product design, the roadmap, and prepare for commercialization of Guardian XT, Sapient 6M, and C-Class products. Although the field trials took place on Navy property, and the Navy is a valued partner of Sarkos, the jobs that our robotic systems executed are applicable to work done on commercial ships and at commercial shipyards throughout the U.S. and across the globe. We believe StarCoast robotic systems can play a huge role in the development of commercial shipyards. Reptex also provided a perfect opportunity for the first field test of our combined product line. Our newly integrated One Star Coast team brought the best of the best from Salt Lake City and Pittsburgh to ensure that the Navy requirements and the dirty and dangerous jobs were executed collaboratively across the portfolio. Similar collaboration has been taking place across the business as we have successfully completed the integration of several IT and HR systems and standard operating procedures, eliminating many of those initial integration pain points and creating synergies across the two locations. There's more work to do, of course, but we just celebrated our six-month anniversary as a combined company, and I'm delighted by how much we have achieved and the opportunities in front of us. As I usually do on these calls, I'd like to give you an update on the development of our combined product line and where we stand on the path to commercialization. Our expanded product line now comprises of three different offerings. The first of these is our range of teleoperative robotic systems. These solutions are designed to allow humans to use robots to undertake tasks in unstructured environments. In many cases, such environments put people at risk of injury who require them to undertake dexterous tasks that are difficult or unpleasant. By using teleoperation and past economy, our products can retain the skills and dexterity of the human worker and allow them to be deployed from a safer location. The first of these solutions, the Sapient 6M system, is an intelligent robotic solution capable of control by both teleoperation and supervised autonomy. The other tele-operated solution is our Guardian XP, which is designed to have more dexterity in its end effectors and also be expected to be equipped with capability of supervised autonomy. I'm happy to let you know that we have completed the final build of our pre-commercial system of the Guardian XP and have allocated these units for additional customer engagement, developing our manufacturing readiness and reliability testing as we prepare for initial production of commercial systems and commercial release. We continue to expect to start initial production of commercial systems at the Guardian XD by the end of this year to be available for delivery to customers in early 2023. I am equally as delighted to be able to tell you that we actually began production of the commercial 6M units ahead of schedule in the third quarter. Beginning production ahead of schedule is a real testament to the hard work of our entire team and demonstrates the energy and commitment of everyone at Sarcos to bring the workforce of the future to life. Potential customers continue to express strong demand for commercial versions of both these products, and we believe initial customers for our tele-operated systems will most likely come from shipyards, aviation, and vegetation management industries. In addition to the 6M, the Sapient line also includes the C-Class, a one- or two-armed, highly dexed robotic system suitable for complex underwater environments. The C-Class can be used for commercial applications, industrial tasks, or military operations, and reduce the need to put divers in the water and explore depths that are unsafe for humans. From inspection of ships underway to oil rigs and offshore wind farms and many other use cases, we believe the potential demands for the robotic systems such as the C-Class, which can stay submerged at depths for up to two hours and operate autonomously or via teleoperation, is significant. The second product line is the powered full-body exoskeleton, the Guardian XO, which will be a strength and productivity multiplier designed to eliminate fatigue and injury. We continue to make advancements in the development of this groundbreaking system. During the quarter, we implemented a new piece of control architecture on the software layer that improves the accuracy and responsiveness of the arms and legs by including a new development called G-folder control. This leverages the power of predictive models into the way the motors and joints behave and enables faster and more accurate responses to differences between request and action. These changes will not only benefit the exoskeleton, but can be implemented in the Guardian XT and safety systems. The third product line is our supervised autonomy, software as a service capability, which we intend to offer as additional services to customers of our robotic system. Therefore, depending on the product, our commercial production timeline expectations are ahead of or unchanged from the guidance we gave on our last call. But we continue to see challenges on these expectations from supply chain constraints and the availability of skilled employees, both in-house and at development partners. At Sarkos, meeting our projected timelines is a core focus as we firmly believe that there is a significant and unmet demand for the products that we are about to bring to market. We also believe that this demand is growing consistently in several new areas. One critical example is the availability of workers to fill positions in growing segments like renewable energy. The Inflation Reduction Act was signed into law on August 18th. Among other measures, the Act authorizes the significant funding and incentives for U.S. companies to enable decarbonization of the power grid with the ultimate goal of moving the U.S. 100% carbon-pollution-free electricity by 2035. This is a significant development for the clean power industry and companies like Sarcos that aim to provide the tools to assist with this transition. The decarbonization of the U.S. economy is a massive undertaking and will require significant investment. Freshly, estimates the public and private climate spending could total $1.7 trillion over the next 10 years. One of the challenges facing the power generation industry is a lack of workers to undertake the installation of new generating sites like solar arrays. Commercial solar farm installation is hard work and often takes place in inhospitable, remote locations. Finding a sufficient workforce to accomplish solar installation is a significant problem for solar installers. The number of people employed by the solar industry fell significantly during the pandemic and hasn't recovered. In order to meet the target of 100% clean electricity generation in 2035, the solar industry is expected to have to fill 900,000 new positions, a 380% increase on the number of people employed by the industry today. For an industry that is already impacted by hiring challenges, this will be difficult, if not impossible. As a result, solar installation firms need solutions that improve the productivity of workers and make employment in the field more desirable. In 2021, RE2 began working with the Department of Energy on its OAMP program to develop a system to deliver and install PV modules economically. We have made tremendous progress in this area, and we are increasing our efforts given the significant opportunities. The renewable energy segment is just one example, whether it be solar, wind, where Sarcos is focused on bringing to market the robotic systems that allow customers to do more with less. This is just one area of developing demand. We continue to be focused on aviation, work at height, and construction. I'll end it there for now. But before I do, I'd like to thank the entire 280-strong Sarcos team members for a job well done this quarter. Some of the integration work was disruptive. as we moved through the quarter, but we adapted and we moved forward, and the progress achieved was significant. To meet our product development timelines was a huge accomplishment, especially given the supply chain challenges and war for technical talent. I'm extremely proud of the team that despite these external challenges, we are still on target to start initial production of Guardian XT by the end of the year and ahead of schedule on the recipient 6M commercial unit. The team did so by living up to our core values, trust, respect, and teamwork. You are all brilliant. Thank you. With that, I'll turn it over to Drew for his Sarcos earnings call debut.

Disclaimer

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