Quanergy Systems, Inc.

Good afternoon and welcome to Quanergy Systems' first quarter 2022 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone keypad. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Ryan Gardella, VP Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Quantity's first quarter 2022 earnings call. Today, we'll be discussing the results announced in our press release issued today. Joining us from the company is Chairman and CEO Kevin Kennedy and CFO Patrick Archambault. Today's call will include a review of the company's business fundamentals, key differentiators, and operational progress and financial results during the first quarter of 2022. We will then open the call to participants for questions. Quantogy has also posted a presentation to the investor section of its website that accompanies today's call. We encourage investors to access this presentation as management will reference the content of today's call. As a reminder, this conference call contains statements about future events and expectations which are forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results may differ materially. For a full list of risks inherent to the business and the company, please refer to the company's annual report in Form 10-K and other reports filed with the SEC. Quanergy undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures, but in the meaning of the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today's press release presentation. And now, I would like to pass the call over to Kevin Kennedy, Chairman and CEO of Quanergy.

Thank you, Ryan. and thank you all for tuning in to our first earnings call as a public company. Before I begin going through the results and milestones of the first quarter, I would like to give a little background on Quantogy for those who are new to the company. From the perspective of the overview, on page three of our presentation materials, we have provided a snapshot of Quantogy. We are a leading provider of LiDAR sensors and 3D perception software. Founded in 2012, we have built a leading set of solutions a strong IP portfolio of 30 issued patents, and a base of business that spans nearly 400 customers and 50 partners. Our portfolio includes a variety of LiDAR sensors, both mechanical and solid state, paired with an intelligent 3D perception software platform called Cortex. The combination of 3D perception software and sensors enables the intelligent detection, tracking, and classification of objects. Our solutions are designed for a wide array of applications that span two major markets, the Internet of Things and automotive. Within the IoT market, we are focused on use cases within security, smart cities, mapping, and industrial. Our goal is to enable our customers to automate business processes, increase productivity and efficiency, and deliver actionable insights across major industries around the world. Now to differentiators. Turning to page four, there are a number of publicly traded LIDAR providers, so a brief summary of factors that differentiate quantity is provided as a guide. First, we have a balanced focus on two major end markets, the Internet of Things and automotive. Of course, automotive is seen as the largest long-term market opportunity for LIDAR. However, timelines for autonomous driving continue to slide to the right. And LiDAR sensors available today do not meet the price, performance, and reliability requirements needed for mass market production. This is not our own view alone. It's a view confirmed by our automotive partners. One thing that is truly unique about Quanergy is that from the very beginning, our founders recognized the significant potential for LiDAR in non-automotive markets, markets that we collectively refer to as IoT. These are sizable markets. that exist today that are ripe for disruption via the automation and intelligence that our solutions enable. Some of these markets have been served by 2D LiDAR or 2D camera-based systems that we are actively working to replace with our 3D solutions. Our strategy is driven by a mission to engage the markets of today while building scale, improved price performance, and greater reliability as a bridge to the demands and potential of the automotive market in the future. A second differentiator of Quanergy is our proprietary solid-state LIDAR platform based on optical phase-to-ray technology, or OPA. This approach is true solid-state, meaning it has no moving parts at either the macro or micro scale. Our OPA-based solid-state LIDAR harnesses the power of silicon photonics leverages mature CMOS silicon processes, and utilizes software-defined techniques to detect, track objects, and much like phased array radar, but in the optical domain rather than in the radio frequency domain. If we are successful executing our roadmap, our OPA-based sensor will deliver ultra-high reliability and robust and flexible performance at disruptive mass market price points. In short, we believe our OPA-based sensor is the only LiDAR that can truly scale economically for the mainstream automotive market. A third differentiator of Quantigee is our software capabilities. Within the IoT market, we pair our industry-leading M-series mechanical sensors with our proprietary Cortex 3D perception platform. Based on more than seven years of development, Cortex is a flexible, scalable software platform that uses computer vision technology and 3D perception algorithms to enable smart awareness of the 3D world to identify, track, and classify people and vehicles in real-time in security and smart cities applications. We believe our 3D perception software capability is unique in the industry and further differentiates us from our peers. Our fourth differentiator is really the culmination of the prior factor. resulting in what we deem to be a superior business model. We're able to generate commercial revenues in IoT markets today, not from prototypes or services, but from sales of sensors and software into production environments. Customers in these mission-critical markets are willing to pay for the best product, so despite supply challenges, we generated positive non-GAAP gross margins during our first quarter of 2022, and three out of the last four quarters. We have a completely unique solid state architecture based on OPA technology and mature CMOS process technology that we believe will allow us to reach the price point needs for mass market automotive, while also yielding healthy gross margins for quantity. Finally, because much of our solid state development costs are behind us and we are taking a more measured approach to the auto market, we have a lower cash burn rate than most of our peers. Now to key results. For a review of Q1 2022 performance, as I look back at the quarter, there are really four key themes that stand out, and these themes are highlighted on page five of the presentation. First, our revenue performance represented a positive start to the year. Our $1.4 million of revenue slightly exceeded the high end of our guidance range and represented 257% year-over-year growth off a modest base in 2021. In the quarter, revenue attainment was limited not by demand, but rather by the supply chain. More generally, we saw a demand environment in Q1 that was more favorable than what we saw in the fall of last year. How do we measure the demand environment? Well, our sales pipeline has grown steadily. We are seeing projects move from proof of concepts to deployments to expansions. Deal sizes are increasing, and the number of large deals is also increasing. That brings me to theme number three. Given the positive demand environment, we are investing for growth in a responsible manner. We've had healthy success bringing on additional talent. In fact, we grew our headcount 38% year over year in Q1, with 76% of the new hires within R&D and operations in order to align with demand trends. We are making investments across the organization to ensure that we can capitalize on the substantial opportunity in front of us and also support Quanergy as a publicly listed company. Speaking of becoming public, we are pleased to complete our SPAC merger with CCAC on February 8th. This transaction was important as it allowed us to repay or convert our outstanding convertible debt, and we also secured a fully committed equity line of $125 million. Finally, theme number four, we continue to manage through some risks and uncertainties. The biggest challenge we are facing is the continued supply constraints for electronic components. This is impacting our ability to convert bookings to revenue on a timely basis, pressuring our gross margins and leading to additional R&D costs. During the quarter, we expended considerable effort and deployed resources towards supply chain remediation and redesigned work in response to supply chain discontinuities. At the moment, we have not seen any improvement in the supply chain environment But we are using every tool available to us to help mitigate this challenge. These steps include investing in parts procurement for future quarters, extending the lead times of our deliveries, and moving to full sensor assembly in three locations, including two low cost Asian sites, in addition to our facility in Sunnyvale. Now to operational highlights. I'd like to review several of our accomplishments from the first quarter. On page six of our presentation, you'll note a few of our recently announced customer wins with Vecna Robotics, DigitalMotor, and the SFMTA. In each of these cases, our IoT solutions are helping customers solve real-world business challenges and achieve measurable benefits by enabling greater automation through accurate object detection, tracking, and classification. For example, with the addition of Quantigy's solutions, the SFMTA was able to demonstrate a 16% reduction in travel time. Imagine the potential economic benefits of this type of time savings if it were extrapolated across major population centers of the United States. Turning to page 7, we highlight our continued traction in the security vertical. This is clearly a big opportunity, a nearly $500 million TAM, according to analysts' estimates. And we possess clear advantages in terms of detection range, accuracy, total cost of ownership, and plug and play integrations with third party video management systems. False alarms are a major drawback and source of expense and annoyance with traditional security systems. With Quanergy, our customers have been able to reduce false alarms by 95% while delivering 98% accuracy when identifying intruders. It's for these reasons that our solutions have been deployed at some of the largest data centers in the world, as well as major airports, prisons, military bases, and other high security locations. It's also why leading security partners are increasingly embracing partners such as Genentech, Milestone, Mirasys, Surveil, Securitas, and Quantum IT. One of the themes we talked about at our analyst day was the level of innovation across our IoT portfolio. On page eight, we show how this level of innovation continued in the first quarter. We introduced three new products targeting the IoT market, a new version of the MQ8 PoE sensor, the latest version of our Cortex automated ID handover, and a new version of the M1 Edge sensor. Taken together, these options offer our new and existing customers enhanced performance and intelligence for use cases, including flow management, object detection, and collision avoidance, for indoor and outdoor navigation. Next, I wanted to provide an update on our solid state development roadmap. As shown on page 9, our OPA-based sensor platform has achieved a major milestone by detecting objects in bright sunlight at an unprecedented range of 250 meters, another industry first. Not only is this type of range in line with automotive OEM expectations, but it also strengthens our ability to enable other advanced mobility applications like mobile robots and HVOR vehicles. During the remainder of 2022, we will characterize prototypes across various combinations of range and field of view while assessing product market fit and improving supply chain deliverables. Page 10 shows members of our senior executive team standing outside the New York Stock Exchange on the day we listed publicly. This milestone was the culmination of a lengthy process, and I would like to personally thank all the Quantogy team members who made this possible. The closing of this transaction, along with key hires across the leadership team and organization, positioned Quantogy well for growth moving forward. To a conclusion, in summary, our first quarter was a positive start to the year. The demand environment is quite healthy, and we are delivering robust year-over-year growth. We are facing some headwinds related to the supply chain, as many other companies are experiencing, and doing our best to mitigate these effects. We are unique versus other LiDAR providers, given our balanced focus on both the IoT and automotive markets, our OPA-based solid state architecture, and our 3D perception software capabilities, enabling what we believe is a superior business model. We are now in the public markets with a growing, talented team and an even stronger foundation to support our growth initiatives. We have a lot of opportunity yet to tackle, but I'm pleased with our start to the year. With that, I'd like to introduce our CFO, Pat Archambault, who will review the financial results for the quarter. Pat?